Financing: Contracts, Provisions, and Contingencies!

Transcription

1 Financing: Contracts, Provisions, and Contingencies! Insights from Neil Kalin of C.A.R. Member Legal Monday, November 13, :00 a.m. 11:00 a.m. mortgage.car.org (213)

2 Thank you for joining the Webinar! You can shrink the control window by clicking on the right hand arrow. Your phone will be muted, as there are hundreds of Members on the call. Don t forget to turn on your computer speakers or call in to hear the audio. You can access the Handout in this section, so you may follow along throughout the session. You can type your questions in the chat window and we will do our best to answer in the course of the session. Connect to the audio by 1) Teleconference: Dial (213) Access code # # Or 2) VoIP: Ensure that your computer speakers are on (a headset is recommended) 2

3 Financing: Contracts, Provisions, and Contingencies! Insights from Neil Kalin of C.A.R. Member Legal Monday, November 13, :00 a.m. 11:00 a.m. mortgage.car.org (213)

4 For a full recording of webinar Speaker slide deck Speaker bios

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6 Mortgage Rescue fka Finance Helpline B2B Webinar: Financing: Contracts, Provisions, and Contingencies! Neil Kalin Assistant General Counsel CALIFORNIA ASSOCIATION of REALTORS Marc Farfel Lender Liaison CALIFORNIA ASSOCIATION of REALTORS 6

7 Lender Related Contract Clauses How the buyer-seller agreement (RPA), and changes to it, can impact the buyer-lender relationship. Neil Kalin Assistant General Counsel, California Association of REALTORS

8 Agenda Close of Escrow and Purchase Price (RPA 1C and 1D) Loan Terms (RPA 3D(1) and 3D(2)) Loan Application (RPA 3J(1)) FHA/VA (RPA 3D(3)) Appraisal Contingency (RPA 3I) Loan Contingency (RPA 3J(2) and 3J(3)) No Loan Contingency (RPA 3J(4)) Lender Limits on Buyer Credits (RPA 3J(5)) Buyer Stated Financing (RPA 3K)

9 Close of Escrow Purchase Price x 799, Lender must be advised of change in COE date By counter offer Or addendum Lender must be advised of change in purchase price By counter offer Or addendum

10 Close of Escrow Purchase Price 1. Purchase price to be 799, Close of escrow to be 44 Days After Acceptance

11 Close of Escrow January 15, 2018

12 Purchase Price 790,000

13 Loan Terms 1.75 x Best Practice is to complete the fields. Avoids argument that material term is missing from contract. Avoids argument about good faith attempt to obtain loan if not meeting buyer s unexpressed expectations. Advantage to Buyer Creates a legal/contractual justification to cancel if lender cannot meet specified terms Demonstrates buyer awareness of loan market Buyer still has right to obtain loan on less favorable terms Advantage to Seller Seller can assess if buyer is serious Seller can counter with terms that are realistic Seller can evaluate buyer against other offers

14 Loan Terms: Prequalification or Preapproval x Pre letter should be based on Loan Term paragraph. Hard to do if not completed. Pre letter should be based on qualifying rate not initial rate. Best practice is to contact lender or loan broker in advance. Stronger offer if letter attached rather than making seller wait 3 days to receive and then review. Letter does not have to mention maximum price for which buyer qualifies. Buyer will have better idea what terms to put in paragraph 3D.

15 Loan Terms: Prequalification or Preapproval Can seller, in counter offer, require buyer to submit dual application with seller preferred lender or at least get pre- letter from same? Yes. But may be an issue if seller has ownership interest in lender, requires use of lender for loan and seller has monopolistic market power. Usually only relevant for new home builders.

16 FHA and VA x x Form FVAC is auto-attached when check placed in box before FHA or VA in 3D(1). Form FVA is used once inspections have been made. It is the equivalent of RR form but only for lender required repairs. Advantage of using FVA is that seller will know that lender will not likely loan if requests are not fulfilled. Buyer at risk if buyer removes loan contingency before seller responds to FVA requests.

17 FHA/VA Amendatory Clause FVAC is an appraisal clause independent from Paragraph 3 I in RPA. Removing appraisal contingency does not remove FVAC contingency. Fill in blank field with offer price. Send in revised FVAC later if price changes as result of counter offer or addendum.

18 FHA or VA Notice and Addendum Lender requirement not just buyer wish li Risk to seller if loan contingency not removed Risk to buyer if loan contingency already removed

19 Appraisal and Loan Contingency 2 separate contingencies. 2 different time periods. Appraisal contingency essentially demonstrates to buyer that property is worth the price. Applies even if all cash or no-loan contingency. Loan contingency essentially demonstrate to lender that property is adequate security AND that buyer is qualified (able or likely to make payments) Removal of loan contingency does not remove appraisal contingency Removal of appraisal contingency does not remove loan contingency entirely but partial removal of appraisal portion of loan contingency

20 Appraisal and Loan Contingency December 15, 2017

21 No Loan Contingency No Loan Contingency paragraph sends the following messages to the seller Buyer needs a loan to purchase the property If buyer has cash on hand and ability to close without loan, buyer probably would have checked the all-cash paragraph (3 C) Buyer should not check all-cash paragraph (3 C) if no intent or ability to close without a loan (may be unable to provide proof of funds) Buyer is confident in obtaining the loan Buyer should give pre-qual or pre-appr. letter with offer to show strength Buyer should give proof of funds with offer to show strength (the higher the down payment the stronger the offer) Buyer is willing to risk losing deposit if buyer cannot get the loan

22 Lender Limits on Buyer Credits Buyer s real estate agent needs to understand the lender s limits to properly negotiate the deal Paragraph 3 J (5) is broad-based Any credit from any source Does lender apply rule the same way. Recurring closing costs? Non-recurring closing costs? Repairs? Commission rebates? Rule applies to credits negotiated at beginning of transaction and during escrow Typically found in RPA paragraph 3E, 6, 7 D (8) or (9), or forms RR or RRRR Risk to buyer if over-negotiate credit Sales price not reduced If loan and inspection contingencies already removed, buyer has little leverage to obtain concessions Buyer and buyer s agent in better position to know limits than seller or seller s agent

23 Lender Limits on Buyer Credits OK Not here OK Not here OK

24 Lender Limits on Buyer Credits Not here Not here FYI

25 Lender Limits on Buyer Credits

26 Buyer Stated Financing Buyer has contractual obligation to pursue financing specified in 3D Buyer has the right to pursue any other financing Ex. Buyer states 20% down conventional loan but tries to get a 3% down FHA loan If buyer does not even apply for financing in 3D, has buyer made a good faith attempt to obtain the designated loan (see 3J(2))? Different loan does not change other terms stated in contract Ex. Proof of funds. Contingency removal periods. Applying for different type of loan may effect seller subsequent interaction Ex. Negotiation over repairs. Flexibility with time periods regarding removal of financing and other contingencies. Allowing access to property. Consequence if buyer pursues different financing If buyer can close on time and at purchase price. May be breach but no damages. If buyer cannot close on time. No contractual excuse in 3K for failure. Not uncommon for builder / flipper who makes all cash offer

27 In Summary Keep in Mind or Take Aways KEY Items or Things to Consider: Price & Closing: RPA - Price (1C) & Closing (1D) SCO - Other Terms (1C) ETA Scheduled COE (1) RR Price (1d) Loan Terms (Rate & Points): RPA 3D(1) 1 st TD - Advantages RPA 3D(2) 2 nd TD - Advantages RPA 3J Pre-Approval Letters (Q) SCO (1C)- Dual Applications FHA or VA Financing : RPA 3D(3) FHA or VA Requirements FVAC 1 Amendatory Clauses FVA Buyer Request, Seller Response, Requirement v Wish list Lender & Appraisal Contingencies: RPA 3I, 3j(2), 3J(3), 14A, 14B, 14C Lender Limits on Buyer Credits: 3J(5), RR, RRRR REALTOR Resources: Mortgage Rescue mortgage.car.org Lender Resources Automated FHL-AIBot Mortgage Assistance Legal Resources ZipFormPlus Legal Hotline Legal Q & A s Disclosures AI Bot

28 Questions? Webinar recording and slides will be posted on financeworkshops.car.org If your question did not get answered, 28

29 Save the Date! Upcoming Mortgage Rescue TM fka Finance Helpline B2B Webinars Tuesday, November 28 th 10am 11am - Reverse Mortgage (tentative) Wednesday, December 6 th 10am 11am - FHA Update (tentative) Wednesday, December 20 th 10am 11am - Valuation part 2 - Creating an Actual Appraisal Valuation (tentative)

30 Thank you! mortgage.car.org (213)