I was interviewed last week by Amy Hoak of the Wall Street Journal Marketwatch about the looming deadlines for the Home Buyer Tax Credit. As you know, eligible buyers must be closed by June 30th in order to claim the credit. Her article is a terrific overview, so I recommend you take a look at it.
We’ve written about this issue before in this space, but we wanted to review some of the finer points of making sure you can get closed by June 30th.
The biggest problem home buyers are going to face is simply the difficult in creating a sense of urgency in the industry professionals involved. Why? Because in the vast majority of real estate closings, the parties do not have a “hard” deadline for closing. In fact, most industry pros are used to last-minute delays in closings, which are generally not a big deal. If we can’t close on Tuesday, we’ll close on Thursday; if not this week, we can close next week. Most real estate contracts have a closing date stated in the contract, but that date is an “on or about” date and is generally subject to extension for any reason.
So most real estate professionals – lenders, real estate agents, title closers, settlement agents, attorneys, etc. – are not used to dealing with a hard deadline. They have a mindset that “close to” the date is good enough. In this case, though, it’s not good enough. If you’re not closed by June 30th, you don’t get the credit.
In talking with Amy, I came up with a list of the types of things that could delay your closing:
- Communication of Urgency. Can’t stress this enough. Make sure EVERYONE involved in the transaction knows you have to close by June 30th. Ensure they make your closing a priority.
- Lender Documentation. Since the biggest source of last-minute closing delays come from lender requests, contact your mortgage lender and brainstorm about any potential documents or information they might need to get you clear to close. Ask what kinds of things come up at the last minute, to get you a head start on tracking them down.
- Late Review of Title Reports. Make sure your attorney or settlement agent reviews your title report as soon as possible. Usually, a title report is ordered around the time of contract signing, and is produced within a few weeks afterwards, but in a lot of cases the attorney or settlement agent won’t review that report until the week of the closing. Make sure your attorney or settlement reviews the title as soon as it comes in, in case a problem crops up. Those problems can usually be resolved, but they take time.
- Open Permits. A major stumbling block to closing comes when the seller turns out to have done some work on the home without completing a final engineering inspection and closing out building permits. This might be a deck, a bathroom, or any other remodeling project. Usually, it’s not illegal work, just work that was done legally, but no one bothered to file the final paperwork. Not a problem, unless you discover it on June 28th, the day before your closing.
- Short sales. In some areas of the country, almost half of the transactions involve short sales, which essentially require approval not of the seller but of the bank that has to approve taking a short on the mortgage. Getting approval for short sales has become easier in the past year or so, and particularly in the last six months, but bank loan mitigation departments are not necessarily responsive to requests to close on particular dates unless the parties in the transaction are very aggressive and competent in responding to bank requests. This is particularly troublesome because the seller is the one in the relationship with the bank, not the buyer, and a lot of sellers in those situations have a low level of urgency since they are not getting any equity out of the transaction. It’s even tougher dealing with banks than with sellers if you’re trying to get a deal closed by the deadline.
- Last minute judgments. Sellers who are in some sort of distress often have stopped paying their mortgage as well as some other debts, and it is not unusual for creditors to put last-minute liens on a property between the time of the initial title search and the “continuation search” that is conducted on the eve of the closing. For example, sellers in short sale situations might get approval for the short from the bank, only to discover the day before the closing that a creditor has put another judgment lien on the property that now requires a re-negotiation of the terms.
- Verification of Employment. The biggest last minute hold up is verification of current employment, which can’t be done until the loan is cleared to close (i.e., the bank wants to verify employment right at the last minute, before the loan is issued). So make sure you can get that verification, and that your employer is available to give it, within the few days prior to your closing.
- PMI approval. If you are getting PMI, you’ll need to be aware that PMI companies don’t give approval until the first mortgage bank clears the file, so PMI approval necessarily comes at the last minute.
- Last minute credit documentation. A lot of times, the lender needs last-minute credit reports, pay stubs, and other credit documents. Lenders usually run credit and collect credit documents when they take the loan, but those documents are only good for about 60-90 days. Given how long it generally takes to close, by the time of the closing, those documents might be considered out of date, and new credit reports (and new bank statements, and new pay stubs) have to be collected.
- Credit Impact. Another delay can be caused if the buyer has done something in the past few months, since they made the application, that affects their credit rating (such as buy a car, open a new credit line, anything at all). Most lenders caution buyers to be very careful about doing anything that might affect credit, but that last-minute credit check might show a change in credit status that can delay (or kill) a loan.
We hope this helps. Good luck!
