What are Prior to Documents and Prior to Funding Conditions…? Some “inside baseball” talk from a Real Estate Broker’s point of view
Let’s talk about “prior to doc” conditions first.
What I’m describing here are conditions that the Lender has required that need to be met “prior to the issuance” of loan documents” to the escrow holder for the Buyer to sign.
Generally these will be and have been issues primarily regarding the Buyer’s credit worthiness such as, verifications of employment, verification of and source of down payment, verification of income and income sources, etc. Basically qualifying the Buyer based upon the Lender’s loan criteria to be able to make the payments on time consistently.
If some of these criteria have not been totally satisfied, what Lenders do most of the time is to issue a statement that the Buyer has qualified for a loan “subject” to conditions that must be met before they will even type up the loan papers to be delivered to the escrow company for Buyer’s signature. In other words, these conditions are serious enough the Lender won’t even draw up the documents until they have been met.
When those conditions are finally met, loan documents are issued to the title company with a list of conditions that must be met “prior to funding” the loan.
Prior to Loan Funding Conditions.
These are the conditions that must be met before the lender will issue their funding check/wire to the Escrow/Title Company and allow the sale to close.
Generally these are conditions that provide for, not only that all of the documents must be properly signed and notarized, they will also include items such as providing proof of adequate Hazard/Fire insurance, obtaining Pest Control and/or Roof Clearances/Certifications along with a commitment from the Title Company that they will issue a policy of title insurance in their favor at close of escrow.
So why does Bank of America now have a Pest Control Clearance as a “prior to document” condition..?
We’ve got a single family home listed for sale at 125 Rambling Drive in Folsom that has been in a “pending sale” status for about 6 weeks now.
I’ve been in the real estate business for a while going back to 1981 and this is the first time I’ve ever seen a transaction that required the Seller to provide a Section 1 Pest Control Clearance prior to the bank issuing their loan documents.
Since this transaction is a short sale and this condition was not provided for in the short sale approval letter, it absolutely amazed me this was required by the Buyer’s lender.
The only way this condition was satisfied was because the Buyer’s agent decided to pay approximately $1,000 to the Pest Control Company so they could complete the work & get the clearance which she then delivered to Bank of America’s processing center here in Folsom.
So with all that said, as of today, we still don’t have documents delivered to the escrow company from the Bank.
Looks to me like the Lender Criteria and Approval Process is really becoming a monster of a paper mill. When you have a well qualified buyer with great credit and an appraisal that didn’t call for any pest work to be completed, why is Bank of America making it more difficult to close an easy transaction..?
Just another day in Real Estate..!
Make it a Great Day…!!!
Ed Favinger, Broker CRS, GRI, SFR favinger@rwnetwork.com 916-203-1260
Related articles
- BofA Drags Balance Sheet Confidence Backward: Jonathan Weil (businessweek.com)
- How Important Is The Title Company? (zillow.com)
- Buying a house – Closing without funding? (ask.metafilter.com)
Sounds like Bank of America typical, “New Loan” processing requirements?
I recently had an elderly client with an 800+ credit score and a couple $100K on deposit with Bank of America. Being faithful, they went into their Bank of America branch to get prequalified to buy a house for their son.
She wanted to put 30% down, which came from the sale of her mother’s home (who had passed away several months ago). With the 800+ credit score, 30% down, money on deposits and verified assets, their loan officer with B of A told them this was a “walk in the park”.
Being in the business 20+ years and my dad being in the business over 45 years, these are the kind of buyers you love to have!
After turning in all the necessary documentation, B of A said they were good to go, (after 3 months of searching, they found the perfect house).
After 35 days into a 45 day escrow, problem #1 pops up. B of A wants them to put more than 30% down, because they don’t have “landlord experience”. (remember they were buying this home for their son). After offering to have a property management company with over 40 years experience in the area to manage it for them, B of A abruptly told them that this wasn’t good enough and that the only loan they could qualify for at this point was for the amount of $75,000 on a $230,000 purchase price! (do the math)!
On top of that, there was a $13.00 difference between the amount they received from the proceeds from her mothers house and the amount that was deposited in the bank as reflected in their records. This problem, turned out to be a fee that B of A charged them to do the wire transfer. Without enough time to just go to another lender at this point, the buyers decided to use some of their “retirement funds” to just close the deal so that they didn’t miss out on buying the a home for their son and grandchildren.
So things were looking good again and back on track, after being told that all the prior to doc conditions were met, buyers go into sign their paperwork.
This is the part where everyone “usually” breathes a sigh of relief thinking after signing, the loan will probably fund in a couple of days.
But, after 3 days of the loan not funding, “WE” have to call B of A to find out, Problem #2 has come to light: although all the prior to doc conditions were met and all funding requirements were met, the “investor” (as described by B of A) did not like the fact that even though the appraiser (who had already been out to the house twice before), said the dishwasher was installed and working correctly, they didn’t have a photo for proof! So, several more days of delays!
Bank of America received $8.5 billion as part of the rescue package from the federal government and they and their investors are afraid of a $350 dishwasher on a loan of less then 28% Loan to Value!!!??? Do real cases like these sound like realistic approaches to “Economic Recovery”?