WWYD - contract issue

beckyazJuly 24, 2010

I am the seller - received an initial contract from a potential buyer and in the first contract, the portion that talks about the interest rate not to exceed ___% and combined origination and discount fees not to exceed ____% plus loan processing fees, if any, was blank. Went back and forth on the price, and got once a verbal agreement, they revised the first contract and signed, and sent to us to sign. In this revised contract they put 4.5% interest rate in and discount fees are not to exceed 1%. The agent also doesn't break down what they are putting down vs what is financed - on the contract it's stating they are asking for a financing that is 1k less than agreed upon amount for the sale price. The agent states in an email that they are putting 3.5% down but she says she "never breaks it down in the contract" and "always does it this way" and is pushing for us to sign the contract as it is or her buyers may pull the contract and start looking for another home. She's also saying "we have 5 days for atty review". Can we pull out of the contract for ANY reason during the 5 day atty review, or does that basically only cover certain things?


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I wouldn't do anything without consulting your attorney. There are certain state/federal disclosure laws that must be obeyed. Certain states are stricter than others. I would be very Leary when the agent starts insisting you do this or that---she never---will not---Please do not sign anything with blanks. Curious, are you financing the house or are they getting a loan, and how can you ok something that the their loan officer may or may not ok.
Lots of red flags. Also they are asking you to lower the amount?

    Bookmark   July 24, 2010 at 11:43PM
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Simple. Hire an attorney.

    Bookmark   July 24, 2010 at 11:57PM
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" She's also saying "we have 5 days for atty review". Can we pull out of the contract for ANY reason during the 5 day atty review, or does that basically only cover certain things? "

Without knowing what state you are in it is very hard to give any answer.

There are different ways of handling "attorney review" in different states.

Since they made a change you do NOT have a contract until you agree to the changes and initial the changes indicating you accept them, and make no other changes.

The RE agent may be telling you the purchasers will withdraw the offer if you have not signed or responded with a counter-proposal with 5 days.

It is not uncommon to either write into the contract a tie limit for acceptance, or have the agent simply convey it will be withdrawn in some time frame.

Until the 'meeting of the minds' and a valid signed contract, either party can withdraw an offer (what you have from the purchaser) at any time for any reason (no contract has been created).

You can also simply refuse to agree to the changes.

    Bookmark   July 25, 2010 at 10:12AM
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Never never sign anything with blanks.

    Bookmark   July 25, 2010 at 2:25PM
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I don't think it's wrong, or suspicious, that the agent (presumably the buyer's agent?) hasn't broken out the loan amount vs the down payment amount in the contract. Presumably (this is one of the delicate tasks a seller's agent susses out) the buyers have enough cash on hand to cover the $1000 and any loan origination fees, (and various adjustments like partial year's taxes - if that's how it's done where you are - and any buyer-paid filing fees, for both deed and mortgage, and of course any lender-required insurance premiums). In some ways, unless you are the lender, it's none of your business.

As I understand from your post, there are now no blanks on the contract itself, just that the agent isn't telling you how much is being financed and if it is less than the sale price minus $1000.

The seller's usual concern re the mortgage is that the buyers write in a clause that allows them to vacate the contract if they can not obtain financing of a certain amouont (in your case $1,000 less than proposed selling price) at, or less, than a certain rate (and sometimes loan length). Buyers also often, especially these days, insist that the property appraise for an amount equal to the sales price. One way sellers can try to protect themselves, at least a little bit, is to add language to the contract that require the buyers to move right along with the mortgage app. process, providing proof of a completed application within a certain number of days. This protects a seller from a dilatory, uncredit-worthy buyer who will never wind up getting a loan. However, if you added this language to their offer, it would start a whole new round of backing anf forthing, which you may not want to do at this point. (But during the "attorney review period", that's the sort of thing that is sometimes added in, if your attorney feels it should be there. Especially if the buyers want a small timing change, this might be a quid pro quo to ask for.)

It's a little unfair to ask the seller to commit to selling when there is not certainty that the buyers can successfully acquire a mortgage, and under acceptable terms to them, but there's not much a seller can do about that. Sometimes, back in the golden days of sellers' markets, sellers, or their agents, would ask for preapproval for a certain amount (not prequalifying which isn't worth the paper it's printed on), but those days are probably long gone.

You could counter with the right to go on showing the property and to accept back up offers, with or without a kickout clause, in your primary contract, but that may not fly if your buyers get antsy about it, or you're deep in a buyer's market.

By all means take the counteroffer (that's what it sounds like you've got, now) to your real estate attorney for review. As others have said, you don't have a contract until it's signed, and all changes accepted by all parties. But I wouldn't dally, you might lose these buyers.

BTW, do you uunderstand the phrase "discount fees"? I believe those are also called points in many areas and they are fees the buyer pays to the bank to "buy" a lower interest rate on the loan. Although I have occasionally heard of buyers asking sellers to pay points, if it hasn't been a part of your negotiations during the price haggling stage you've done so far, it probably is just part of the negotiations between the lender and the buyer. Another good thing to ask your attorney re what's customary in your area.

Good luck!

    Bookmark   July 26, 2010 at 3:08AM
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By all means, have your attorney look at it.

With that said, the specific amounts in that blank don't have much practical effect. As long as there are any contingency clauses, the buyer has an out. Even if there were no contingency clauses, no judge in the land will force a buyer to go through with a sale. Basically, if a buyer backs out, they back out. At most, you can try to keep any earnest money, but even that may be more trouble than it is worth.

Ultimately, you just want the sale to go trough. This clause have very little chance of affecting that one way or the other. If they can't get an acceptable loan, you aren't going to be selling to them anyway.

Personally, the only thing I would be concerned about is timing. eg they have x days to get an inspection, x days to show proof of ability to finance/purchase etc. You just want the process to progress so that IF the sellers do back out, you haven't wasted too much time.

    Bookmark   July 26, 2010 at 8:52AM
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Sellers need to know whether the buyer is putting down 25% or 5%.

    Bookmark   July 26, 2010 at 10:43AM
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As a seller, I never knew what the buyer put down. That is between them and the lender.

    Bookmark   July 26, 2010 at 12:50PM
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Texas Real Estate Commission-promulgated contracts indicate type of financing (FHA, VA, or Conventional), how much money the buyer is putting down, what the interest rate is, & the maximum lender fees.

If this weren't spelled out in the contract, & the buyer couldn't get, say, a 5% interest loan with 5% down but he *could* get a 12% interest loan with 30% down...should he be held to the contract?

& should the seller sign a contract without knowing that the buyer *has* to be approved for the 5% down, 5% interest loan in order to buy the house?

I'd be very wary of a buyer, seller, Realtor, or anybody else who said he/she "never filled out" *any* blanks & who acted like I should sign any document with blanks.

What if the seller signs & executes the contract & then the other person adds that the contract is contingent upon "zero down payment, 4% interest, zero loan fees"?

Although you might win a battle in court, do you want to go to court, or do you want to get a qualified buyer to buy your house?

    Bookmark   July 26, 2010 at 2:12PM
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I just bought my house, and as terms of our contract I had to provide a preapproval letter before the offer was accepted, and had to provide a letter of commitment from the bank (saying I've gone through underwriting and they are financing the note) within a certain period. I also had written down that financing wasn't to exceed a certain % (although 4.5% is REALLY LOW to have in the contract--I put down not to exceed 6.5%, even though I ultimately got a loan for 4.3%)

But anyways, enough about me--you need to work with your attorney.

    Bookmark   July 26, 2010 at 4:16PM
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I know I posted an update but I don't see it... Oh well.

So the buyer attorney finally agreed to change the contract to show the true amount they would be financing, and also raised the interest rate to 5%. Contract is signed and hopefully everything will move forward with no further issues!

This is actually for my parents, they are the sellers, and they have already had two deals fall through (one due to financing falling through at the last minute and the other was a fraudulant deal that was not discovered to be fraud until right before closing) so they're definitely wanting to get this deal done. The house has been empty since February (they moved out 2 days before they were due to close the first time...).

Thanks everyone!

    Bookmark   July 26, 2010 at 6:05PM
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Exactly what SylviaTexas said.
As a buyer you want to spell out the type of loan and its terms as a way to protect yourself. As a seller, you always want to know the conditions surrounding the financing to be sure they are reasonable.
Also, if there is a multiple offer situation being considered, this part of the contract becomes especially important to a seller.

    Bookmark   July 27, 2010 at 7:41PM
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If I understand correctly, these offerors are saying that a contingency of sale is that they get a loan for $1K less than the sales price at a highly favorable rate of 4.5% with only one point. Are lenders in your area making such loans?

Certainly have an attorney look it, but also have your seller's agent check with local lender contacts to see if this clause is remotely related to reality.

The ability to continue to show the house and a timeframe for removing the contingency are in order, too.

    Bookmark   July 31, 2010 at 11:07PM
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Sorry, I missed the update before posting.

    Bookmark   July 31, 2010 at 11:08PM
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