BUYERS AND SELLERS BEWARE!

Mortgage companies are putting YOUR escrow monies at risk!

Standard Florida Association of Realtors-approved sales and purchase agreements provide for a certain number of days (agreed by both parties) by which the Buyer will furnish a mortgage committment letter, thereby removing the mortgage contingency from the contract. If the mortgage letter is not supplied within the prerequisite timeframe, then it is automatically removed as a contingency.

Whether it is active or passive, the removal of the contingency for mortgage qualification puts a Buyers escrow (aka earnest money deposit) in jeopardy.

As a sidenote, many clients ask me how much escrow monies they should put down on a contract. The simple answer is twofold: there is no hard and fast rule in the State of Florida AND whatever sum is agreed upon by both Buyer and Seller. Buyers always want less, Sellers always want more.

I represented the Seller in a recent transaction and the day before closing, the Buyer's lender requested additional comps (comparative market sales) for the subject home. Apparently, their automated valuation program showed it to be a lesser value than the certified residential appraiser's appraisal did. This was a large inconvenience for both parties (and all involved) but moreso a large risk for the Buyer. What if the lender came back and said "Sorry, we cannot approve this loan...not because the appraisal showed less value than the purchase price, but because WE, the lender, don't think it's worth the money we're lending to the Buyer."

Whoa.

The Buyer has now passed the timeframe to cancel based on qualifying for the mortgage, which means their escrow is at risk. Obviously, the Seller is pushing to close asap but they are powerless observers as the lender completes it's due diligence.

The moral of the story is to use caution when dealing with the mortgage contingency clause. Even if all the dominoes line up, the mortgage lender may throw a curveball at the end that RISKS YOUR GOOD FAITH DEPOSIT.