The 17-Day Test

In California, the standard real estate purchase
contract includes a paragraph that deals with the
buyer's requirement to remove their financing
contingency.

For the most part, the agents, seller, and buyer
are eager to get the transaction moving forward
and to feel comfortable that the transaction will
be successful.

As such, most of the purchase contracts that I
see accept the standard verbiage that calls for
the buyer to remove their financing contingency
within 17 days of acceptance of the contract.

This is 17 calendar days, and the intent is that
the buyer feels comfortable at this point to put
their deposit money at risk to be released to the
seller because they will no longer invoke the
claim that they cannot obtain financing to complete
the purchase.

In advising my borrowers, I don't feel that they
should put their money at risk until they have
written approval from the lender, with any
conditions clearly spelled out, and that the
appraisal has been completed and reviewed by
the lender.

The big problem is that in that 17 day period, we
are going to lose from 4-6 days for weekends and
maybe more if we have any holidays that are to
be observed.

This leaves us 10-13 working days to get the
application, all disclosures issued/reviewed/
returned, put together a complete credit package,
get the appraisal performed, submit the file to the
lender and have it go through the underwriting
process.

In the past, this was difficult but achievable. The
disclosure requirements and underwriting standards
were significantly less stringent at that time. This
is not to say that the way mortgages were done then
is better than now. Only that it was easier to move
a file through the system then.

In today's world, it takes longer than the 17 days to
provide some certainty to my borrower so that they
feel secure in removing their financing contingency.
It is still a worthy goal, but a sense of reality and
cooperation needs to be present so that expectations
are reasonable and that the transaction is not threat-
ened by missing a date that is called for in the contract.

All parties need to understand that things have
changed. As much as I would like the process to be
as fluid and loose as it once was, it is no longer the
case.

We, as lenders, are now required to provide more
stringent disclosures. Once the borrower receives
them, we have to wait 3 business days before pre-
suming that they find the proposed terms acceptable.
At that point, we can request payment for the
appraisal, and get it ordered. Once the loan is
locked, we have to provide new disclosures, and
the borrower has a new 3 days to review and
accept those terms. During the process, if there
are any changes that change the annual percentage
rate on the loan request by more than 1/8%, we
have to issue another new disclosure. The borrower
has another 3 days to find these terms acceptable.

You can see how the time line can get stretched out.
Of course, if the borrower finds all the disclosures
acceptable and return their acknowledgements
promptly, we don't have to wait the full three days
for all of these events.

But once the lender gets the submission package,
they are not glancing at it and rubber stamping
an approval. They are going through everything
with the proverbial fine-toothed comb.

The lenders want to make "perfect" loans. And
that means that all the paperwork has to be very
thorough. If a form is missing a signature, they
will want it corrected. If a figure in one part of the
file is inconsistent with another part of the file, it
will have to be reconciled and corrected. If escrow
information differs from title information, which may
differ from information in the borrower's file, it will
have to be corrected.

All of this is intended to inform you that you need
to be prepared for a more onerous process than
what you may be used to.

We can continue to have a goal of getting what the
borrower needs finished by the 17-day deadline.
But, if it does not happen, it does not mean that it
is necessarily anyone's fault, or that someone
"dropped the ball", or that someone is inattentive.

It merely means that there may just be too much
to be done in that time frame, and that all parties
can still work together to let the sellers and buyers
feel comfortable that their transaction has a good
chance for success.