All Forum Posts by: Tyler Mullen

This contingency also already exists, stand alone sale contingency or as part of a financing contingency, wording varies.  Most buyers can't qualify for a loan and make the down payment if they don't sell first, right?  Some people can swing two payments but not normally.  You'd simply ask them to release their sale contingency or you'll have to sell to the new non-contingent buyer.  

That's just the way it is.  You should not feel pressured or guilty about it, this is totally business as usual.  As another person posted before, if you as a buyer want the property then the fewer contingencies the better, all cash, no inspection, close in a week... that gives no time for a second buyer to come along.

How do you prevent your time being wasted? First, get backup offers and tell the buyer you're doing that. Keep having open houses, get those buyers through! Second, tighten up your closing dates. My local market is hot, a 30 day close on a typical SFR would be like 2-3 standard dev beyond the mean. Third, as the dates of these contingencies occur make sure that you ask the buyer to release them. If you don't do that at all they will see you're not paying attention. Inspection is typically 10 days... so Day 11 after inspection countdown starts, request the release! Fourth, call to verify that a "preapproval" document is real. Fifth, get after that EM deposit immediately! Sixth, make sure from the lender that the buyer actually applied within the required time. Independent verifications! You gotta be all over them like me on chocolate cake!

As far as the issue you might have where you may be using language in a contingency in your contract but where the contract continues regardless what happens, you need to review that with council then because that isn't really a "contingency".  If there is no provable event and no actual consequence then there's no point to it.  I don't think anyone should be expected to wait 30 days before they hear word one about a buyer actually submitting a full and complete loan application.  And if X isn't done by date Y, but then your contingency doesn't kick in with a consequence, then why have it at all?

What buyer would be fine with word one about proving marketable title until 3 minutes before closing?  No, if the seller doesn't provide it within usually 5 days, the deal is off if the buyer wants to because then it's the seller that isn't serious.  But if there was a 5 day requirement but the buyer had no right to cancel the contract then there's no point to the contingency in the first place.

Per the followup post from OP, the buyer was "preapproved" and then "...never went back in to finalize their loan."

In my experience I've kept EM after that set of facts occurred with financing contingency, no big deal. Maybe OP just lacks confidence in his docs or needs to review with their attorney to ensure they understand, perhaps an inexperienced escrow or OP doesn't want to be a jerk about it, he's looking for advice on BP about the nuances in this "grey area" and wants to be professional but without being taken advantage of by what sounds like from his description to be buyers acting like clowns.  Maybe he has never decided to assert a claim to EM so he's nervous, we get that.  What I think maybe he didn't realize is there's likely no need for new fancy wording and elaborate clauses referring to diligence, basically his scenario as stated seems to me to be the same cake already on his plate which he was then asking if he could eat.  No need to reinvent the wheel.

The truth is, a "preapproval" may be issued by a lender utterly irrespective of an "application".  Preapproval may be issued either before or after the application has been completed.  Buyers commonly have 3, 5, 34 preapprovals from any number of lenders for any number of loan amounts.  "Application" by date X is a provable event.

@Marlow Jones

Check the entity that manages the parcel records in that area, sometimes it's available online.  For example here it's:

http://gismaps.kingcounty.gov/parcelviewer2/

Enter address then click through to property detail, boom.

Title report may give you "meets and bounds" if you're referring to the parcel dimensions rather than structure.  Maybe pay a fencing contractor to measure if for you, or you could have it surveyed.  Your need for exactness of the info will guide your choice.

Well I'm no botanist but no, it's not all you can do to verify the buyers pre-approval. If the offer has a financing contingency I would be shocked to learn that it also didn't require something to the effect "... application for financing shall be submitted to the lender within X days." Shall is the key word and you as a seller have every right to demand a buyer prove application was made by agreed date, if they refuse then that's ball game folks. That's pretty boilerplate in MLS forms. (Side note here, attention people that say "agents aren't worth their commission", I guess that's a matter of perspective. :):) )

“Diligent” or any other adjective, most of us would be able to make an application on time as agreed with a lot less than diligence...  “making application” is a standard thing, lenders confirm it all the time.  It’s a light switch type event, on or off.  I can diligently turn the light off or lazily or laughingly or aggressively, here’s one for Mr. Trench, flippantly turn off the light, the qualifier is not relevant.  The state of the light, on or off, by date X, is a provable matter.

Tyler Mullen, CFE

Hey @Christopher L Hall welcome to BP!  I am in investor in Yakima and I have many family in the area, used to spend my summers on grandmas orchard.

What are you looking to get into next, lending, buy and hold?

Agreed, I understand things happen and there's civility and reputation to maintain.  There are lots of ways out of most deals/contracts and professional courtesy usually causes nearly all sale fails to result in the buyer getting their EM back (especially in residential), even if it's more for practical rather than "letter of the law" reasons.  We all know buyers frequently site things like "inspection", "neighborhood review" etc as a reason to kill a contract, even when that's not the real reason.

I just think it's not right to totally negate the risk of a buyer losing EM, EM is a required element for good reason.  And if a buyer gets "cold feet" as was said, they need to use that as motivation and then find a valid reason to get out of the agreement, but "cold feet" as far as I understand the law as a layman, is not going to be sufficient.  A buyer can't just decide not to and then go Rip Van Winkle without any consequences, it's a contract where they agreed to do certain things by certain dates or risk losing their EM, they are not window shopping for bananas.  For the sake of society and business, contracts should be taken seriously by all parties.

In the example presented the buyer straight up neglected to act as agreed by date agreed.  That seems pretty clear which is why it's a common point in contracts, "applying for financing" is specifically measurable, if they can't prove to escrow they applied by a deadline specified in an offer then that should be a pretty clear breach and the EM should be collectable by the seller.  Now, if the seller then wants the buyer to keep the EM anyway, that's a business choice, not a legal requirement.

Your example and the posters are not the same.  In your example, I agree that is a common occurrence and it's my understanding in that exact scenario most sellers reason it's "better" to agree to refund EM and find a new buyer.   

"Illegal" to refuse to write an offer?  I don't know, unethical maybe?  What I do know is any agent under contract has a fiduciary duty to their principle.  Laws differ state to state but generally that includes an absolute duty to fidelity, loyalty, accounting and other aspects.  So a flat refusal to write an offer would in my opinion require an agent to resign, as an agent is supposed to act as directed by their principle if that direction is not an illegal act.  

Same would hold for an attorney you hire, they can't take a retainer from you to defend you in court and then keep it and refuse to defend you in court because they just don't feel like it.  They can refuse for many reasons, but then they have to resign and refund your money.  You're not hostage to your agent, that's not how any of this works.

If the agent doesn't like the price you are considering then ask them to draw up the offer with the price blank because you need to review it with your partner or spouse or banker, then fill it in by hand and send it back later, or just find a new agent.  It's your offer, the agent is a facilitator.  They can choose to or not, and you can choose to use them then, or not.  No big deal, it's just business.

If your sale failed because the buyer didn't bother to get their financing then why can't you keep the earnest money and put your property back on the market?  Isn't that the purpose of earnest money and a deadline for applying for then securing financing?  Maybe only accept offers with higher EM amounts?

I've seen people back out as late as the day of closing and forfeit $50,000 in EM because they "...just didn't feel like closing".  Sure the sale failed, that's a pain, but $50k windfall was pretty nice, no wear and tear like collecting rent anyway.

@Chang Xu

Sometimes things don't go to plan.  I suggest put your emotions and your plan aside for a minute, be clinical and counter the offer with your preferred price.  Just see how they respond, maybe you get your price.

Would you still want to stick to your "original plan" if this buyer was willing to pay you 30% more than you think the current value might be?  To me that sounds more like "Advance to go, Collect $200!" Might be the perfect chance to profit then find a new opportunity and reset your plan!

You have a little bit of an information advantage most sellers don't... buyer is acquiring for a reason, it's not just random, you have a record of what prices this single buyer has been buying the other units.  Look at the last 5 or 10 they bought, set your price higher.

Tyler Mullen, CFE

@Nadir M.

If you lent to someone with a RE license on a written agreement I think the chances are fairly good you can get your money back.  Right now there's a whole range of scenarios that could play out because you have no idea what's really happening as communications have broken down.  There could be fairly benign circumstances in play and it's just a lack of experience/communication, or the complete other end of possible is it could be potential fraud.  Either way it's important to find an attorney and get active on this so you can surf the wave rather than continue to be hit by it.

In general it's been my experience most people that go through the trouble (read "time, money and back ground checks and CPE") to attain/maintain any credential or license are keen not to have it revoked due to ethics violations, acts of moral turpitude, criminal convictions, as that can have a permanent deleterious affect on their future career prospects.  And of those, many less would borrow money on a written note in their own name, for not enough money to leave town, then wait around for 10 months to get caught...  however, there are unfortunately the next Bernie Madoffs and Allen Stanfords out there.

Where it would get interesting/unfortunate real quick is if you find out there was never the intention to perform on the note from the beginning.  I'm rooting for you and keen on everything anti-fraud, hence, why I'm following your discussion.  I hope you get a favorable outcome and everything works out with as little stress and cost as possible, good luck.

Tyler Mullen, CFE