How much protection should an offer have for if a lender recinds loan? (escrow, financing)

[potatosoup]

How much verbiage should there be in an offer in the event a lender defaults or goes out of business in between the time they give a commitment letter or closing? or if they just change their risk appetite even after giving commitment letter?

[chet everett]

Until recently I would have said that is overkill, but given that I have heard of several last minute pull outs by lenders it might be good to hammer something out. Obviously you wold need to make the contract language unambiguous that the deal should not be dead and the escrow would be reset or else a whole lot of time is lost for both buyer and seller...

[potatosoup]

Originally Posted by chet everett

Until recently I would have said that is overkill, but given that I have heard of several last minute pull outs by lenders it might be good to hammer something out. Obviously you wold need to make the contract language unambiguous that the deal should not be dead and the escrow would be reset or else a whole lot of time is lost for both buyer and seller...

would a judge allow a deposit to be kept under such a circumstance?

so what should this contingency say? in the event the lender pulls out after signing a commitment letter, buyer is giving an additional 7 days to obtain a new lender. if no lender can be found, buyer can at their option declare the contract void?

something like that?

[chet everett]

I would run it past an attorney.

Judges are seldom needed to enforce a well crafted contract -- both parties should agree to the principles and language before anything is signed. Judges hate to force anyone to give up escrow as penalty for something that is outside of their control. The purpose of escrow is to keep both sides at the table.

I think you are on the right track as far as something about additional time, but not sure that you would get away with a unilateral void. Maybe the seller has right to attempt to find new lender on behalf of buyer (and buyer must cooperate by supplying any necessary financial info through a trusted part et cetera...), got to have balance or one party is given too much leverage and judges toss those...

[potatosoup]

How can a judge toss what two parties agreed to, regardless if it favors one party? isn't that the whole point of agreeing to something?

my realtor thinks this is overkill and will be a red flag and could cause the bid to be rejected. i feel that in this climate anything is possible.

[chet everett]

If a contract shows "lack of consideration" because of "lack of mutuality" judges must void it.
I am not a lawyer so the finer points escape me, but basically "lack of mutuality" means both sides have to agree about the same thing and "lack of consideration" means that there has to be something of value exchanged.

If the seller gave up time on the market and buyer walks away without letting the other party get something that might not fly...

[potatosoup]

Originally Posted by chet everett

If a contract shows "lack of consideration" because of "lack of mutuality" judges must void it.
I am not a lawyer so the finer points escape me, but basically "lack of mutuality" means both sides have to agree about the same thing and "lack of consideration" means that there has to be something of value exchanged.

If the seller gave up time on the market and buyer walks away without letting the other party get something that might not fly...

yeah but we're talking about something totally outside the buyer's control, right? a bank going back on its word after a comittme nt letter and all subsequent attempts by buyer to secure financing can hardly be cause for seller to keep the deposit. question is whethe or not that needs explicit stating.