There's nothing more frustrating for a seller than to expect to close escrow on a specific date, only to be told that a lender delay is pushing the date further out. It's especially frustrating if that "further out" date is yet to be determined. But what causes closing delays and what can you do to help get things moving again?
Unfortunately, lender delays are very common. Deals involving loans close late more often than they close early or on time. What typically happens is, the loan underwriter asks buyers for additional documents and detailed proof-of-income requests as they get closer to funding the loan. If there's anything that needs further clarification or requires additional proof, the underwriter will ask for it at this time.
For example, the buyer may be asked to:
- Send over a paper trail showing where the $5,215 deposited into their checking account on July 2 came from.
- Get a letter from their uncle stating that the $5,000 he gifted last year came with no expectation of repayment.
- Provide additional tax returns for Year Ending 2014.
Complying with this minutia of lender requests can take time. After the buyer supplies the materials, you then have to wait for the lender to review them. But what can you do to speed up the process?
If your lender delays closing, you have two options:
- Do nothing
- Request to cancel escrow or serve a Notice to Perform
In most cases, doing nothing is your best option because you don't want to risk having to start over with a new buyer. In California, if you go into escrow with a new buyer, their California residential purchase agreement, or equivalent in another state, is likely to also give them two to three weeks to work on obtaining their loan. They may encounter bank delays as well.
While we counsel patience, we don't suggest you sit on your hands. You are well within your rights to ask the lender to provide a detailed list of exactly what they need to close. Once provided, you can evaluate the nature of the items needed and can decide whether it makes sense to stick with the current buyer or whether you'd be better off serving a Notice to Perform and moving on.
Speed up the process
To give buyers incentive to respond quickly, you can also request that they pay you a fee for every day the deal gets delayed past the closing date. Remember, though, the California residential purchase agreement doesn't provide for this payment, nor does the agreement of any other state of which we are aware. Therefore, you, escrow or your transaction coordinator will need to draft an addendum. Make sure you get the addendum signed by both parties stating this stipulation. This tactic tends to work well if demand for your property is high, and the buyer is scared that you will kick them out of escrow.
Use these tips to help keep things moving along if you encounter a delayed closing.