Thursday, August 09, 2007

Do Not Remove Your Loan Contingency

The California Residential Purchase Agreement and Joint Escrow Instructions (C.A.R. Form RPA-CA) by default has the loan contingency removal day to be within 17 days. This contingency is found on the first page under 2-I(i).

The Loan Contingency is in place to protect the buyer for at least 17 days in case the buyer cannot obtain a loan. But after 17 days, the seller will instruct the buyer to remove the loan contingency. Because of the volatility in the lending industry, I'm advising my clients to not remove the loan contingency until we have received confirmation from escrow/title company that the loan(s) have been funded.

Under 2-I(ii), you can check a box which will tell the other party when you write the offer that the loan contingency shall remain in effect until the designated loans are funded. You will usually know when the loans are funded when escrow has received confirmation from the title company. At that point, the recording will take place the following business day. You are safe to remove the Loan contingency at that point.

Please keep in mind that if you remove the loan contingency and the loan does not fund (Example; lender goes bankrupt, you no longer qualify for the loan, etc...) you have a good chance of losing the home and your initial deposit. Initial deposits are about 3% of the purchase price. And in this market, the chance of finding another lender to approve you is slim so you stand a good chance of losing your money.

If you are already working with an agent, please consult your real estate agent for advice. There is a difference when you work with a professional, call me 818-730-4128.

Written by: Richard M. Johnston, RE/MAX OTB Estates

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