When your real estate listing goes from “active” to “pending,” it means you have accepted an offer, but that the sale has not yet closed. During the time your home is pending, a lot of things happen. Having your home loan application denied by the lender impacts your escrow and purchase plans in a few ways. A loan that falls out of escrow does not necessarily mean your deal is dead, but the process of getting the application back on track likely will delay your closing. An extension of escrow, a seller notice to perform and cancellation of the contract are some options, depending on your specific escrow and the loan issues you are facing.
Here are some of the most common reasons a home falls out of escrow:
The Buyer Fails to Qualify for Financing
This is a common scenario where buyers ultimately are not approved for their mortgage. Although mortgage lenders pre-approve a lot of buyers, circumstances can change. For example, the buyer might lose his or her job, accrue new debt or do something that negatively impacts his or her credit score.
Perhaps you have an executed purchase agreement and escrow is opened and the buyer was pre-qualified by a lender but not fully loan approved. Pre-qualifications can be done over the phone with all of the pertinent information necessary to qualify and pull a credit report.
Home Inspection Issues
A professional home inspection is part of the real estate process. It allows the buyer to see if there is anything grossly wrong with the home, and gives them the ability to walk away without losing their earnest money or deposit. Home inspections can reveal issues, including small things that are easy to correct and significant issues that may be very expensive to fix.
Examples could be if mold was discovered, pests or termites on the property, or damage to the foundation. It is always advisable to have a home inspection performed during the escrow process. If the inspection uncovers any defects that impact the value of the home, the buyer can ask the seller to fix them or lower the price. If the seller refuses, the buyer has the right to back out of the deal.
Appraisal Value Is Not Met
Homes are appraised by the buyer’s lender to ensure that the value is in line with the sales price. The mortgage lender will commission an appraisal to ensure the property it is underwriting is worth the price. The buyer’s mortgage is usually contingent on the home appraisal, but sometimes, it doesn’t come back in the seller’s favor. If an appraisal comes in short of the purchase price, the buyer will either have to come up with the difference, choose to order another appraisal in hopes of getting a higher value, or a new purchase price can be negotiated. If the buyer cannot come up with the difference, and the seller will not lower the price, then the deal can fall out of escrow.
Liens or Title Issues
Before a property closing, the buyer’s lender will require a title search by a third-party company to ensure that the title is free and clear. Sometimes, this process can reveal outstanding liens and judgments like unpaid work to a contractor or delinquent property taxes. The search is also looking for any additional parties on the deed (like a spouse or heir) who might not sign off on the title transfer. If the title report uncovers any issues, the seller will need to remedy the situation or release the buyer from the agreement.
The Buyer Gets Cold Feet
Buying a home is a big decision, and sometimes, potential buyers just change their minds after submitting an offer. They will then use one of the contingencies listed below, or another loophole, to cancel their offer. When faced with one of the biggest financial decisions of their lives, some first-time buyers will simply get cold feet.
How to Keep a Pending Sale From Falling Through
Carefully Select the Safest Offer
If comparing multiple offers, it is important to think through the pros and cons of each. This is where your real estate agent can be of the biggest help. Consider prioritizing the offers with the fewest contingencies, and beware of high-dollar offers that might not make it past the appraisal.
Avoid Buyer Home Sale Contingencies
Some contingencies are harder than others to work past, and if you accept a buyer sale contingency, there is not much you can do other than sit and wait for your potential buyer to close on their current home.
Provide a Fact Sheet to the Appraiser
An appraisal is based on objective facts, such as square footage and comparable sales in the neighborhood. However, there are some factors that affect your appraisal that may be more subjective, such as the appraiser’s impression of where your home falls within the range for your location.
Complete a Pre-Inspection
Avoid big surprises in your buyer’s home inspection report by completing a pre-inspection before listing. Then, you can make any important repairs ahead of time and disclose any structural flaws in advance, bypassing stressful and time-consuming re-negotiations.
What Happens at Citrus Heritage Escrow?
During the escrow period, our title department begins researching and examining all historical records pertaining to the subject property. Barring any unusual circumstances, a commitment for title insurance is issued, indicating a clear title or listing any items which must be cleared prior to closing. The commitment is sent to you for review.
Your escrow officer follows instructions on your contract, coordinates deadlines, and gathers all necessary paperwork. For example, written requests for payoff information (called “demands”) are sent to the Seller’s mortgage company and any other lien holders.
When choosing an escrow company there can be many important factors to evaluate. Fees, location, staff and even recommendations from friends and colleagues are all things to consider. With Citrus Heritage Escrow by your side, you can rest assured that when you receive your settlement check, you’ve gained the maximum benefit from your home sale or purchase.
Call us today with any questions or concerns. Our professional Escrow Agents will help you through this exciting yet confusing process. (951) 335-7200