{"id":5635,"date":"2021-09-29T09:07:08","date_gmt":"2021-09-29T14:07:08","guid":{"rendered":"https:\/\/nwfl4sale.com\/part-iii-loan-approval-period-and-possible-pitfalls\/"},"modified":"2021-09-29T09:07:08","modified_gmt":"2021-09-29T14:07:08","slug":"part-iii-loan-approval-period-and-possible-pitfalls","status":"publish","type":"post","link":"https:\/\/nwfl4sale.com\/part-iii-loan-approval-period-and-possible-pitfalls\/","title":{"rendered":"Part III: Loan Approval Period and Possible Pitfalls"},"content":{"rendered":"
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Buyers who want to make their offer more appealing sometimes consider changes to the contract\u2019s \u201cLoan Approval Period.\u201d Of the possible changes they can choose to make their offer more appealing, this one may carry the highest risk.<\/p>\n<\/div>\n
ORLANDO, Fla. \u2013 Part three of a three-part series on buyers\u2019 offers: The series focuses on potential pitfalls in relation to buyers\u2019 attempts to make their offers \u201cmore appealing\u201d in today\u2019s market.<\/p>\n
The Loan Approval Period may be the riskiest clause to change due to all the potential issues that may pop up later. Some buyers choose to submit a cash offer but still pay with financing, which by itself is not an issue, unless buyers ultimately don\u2019t have enough funds to close. If buyers don\u2019t close because they can\u2019t get a loan, a change to this clause means they don\u2019t have the protections included in the Loan Approval Period. As a result, they\u2019d be considered in default under the contract, and the seller can claim their deposit.<\/p>\n
Other buyers and agents try to make the terms of the Loan Approval Period more appealing, by marking that it\u2019s a conventional loan when it\u2019s actually FHA or VA. Or they may state they\u2019re going to finance less than they actually intend to finance.<\/p>\n
The first issue with this? If buyers truly do not intend to adhere to the terms set forth in the contract, the sellers may argue that the buyer\u2019s failure to pursue the loan as described in the contract is a default. In the case where buyers opt to move forward with a VA loan rather than a conventional loan as written in the contract, the sellers would not be obligated to absorb costs associated with VA financing. Similarly, if buyers seek to finance a sum in excess of that described in the contract, those buyers would not be using good faith and due diligence to obtain the loan they agreed to obtain.<\/p>\n
Second, if agents know their buyers plan to do one of these things \u2013 or even worse encourage it \u2013 they could be accused of falling short of their duties to act fairly and honestly, or of being deceptive or misleading. \u00a0<\/p>\n
However, it\u2019s not always deception on the buyer\u2019s part. Often, these situations occur unintentionally.<\/p>\n
For example, the buyers may fully intend to apply for a conventional loan and state this in the contract, only to have their lender tell them they don\u2019t qualify for a conventional loan \u2013 but they would qualify for an FHA loan instead. The buyers then move forward with an FHA loan, not considering the repercussions in the contract. In this case, the buyers need to get an addendum signed by the sellers that reflects the change in type of financing. Otherwise, their deposit could be at risk.<\/p>\n
Whether buyers intentionally misrepresent the terms of the loan they intend to get or unintentionally get approved for a loan that doesn\u2019t match the terms of \u201cLoan Approval\u201d under the contract, the result is the same: Buyers may lose the protections of the financing contingency and ultimately their deposit.<\/p>\n
Another tactic sometimes used \u2013 reducing the timeframe for the Loan Approval Period \u2013 also creates risk. If buyers fail to provide notice to the sellers, either that they have obtained Loan Approval or have not obtained Loan Approval within the appropriate time, the contract gives sellers three days to terminate. In most instances within the Loan Approval Period, buyers should get their deposit back \u2013 but after the Loan Approval Period, buyers do risk losing their deposit.<\/p>\n
Note that there are additional protections for a buyers\u2019 deposit after the Loan Approval Period has ended, but in order to receive the protections of paragraph 8(b), buyers need to get their Loan Approval and provide notice within the timeframe of the Loan Approval Period.<\/p>\n
Articles in this series<\/strong><\/p>\n Part I: Legal Dangers If Buyers Make Offers \u2018More Appealing\u2019<\/a> Laura Gomes is a Florida Realtors attorney
\nPart II: Adding Appraisal Gap Language? Consider This<\/a>
\nPart III: Loan Approval Period and Possible Pitfalls<\/a><\/p>\n
\nNote: Advice deemed accurate on date of publication<\/p>\n<\/div><\/div>\n