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Health & Fitness

Blindsided by the Bank…Laguna Beach Investment Property - Act 3

Thirteen and half days into escrow. The prize looked like a sure thing. Then…BLOW UP!

You already know my client. She’s the professional woman I’ve made famous in recent articles. Drove like a wild woman all the way from Colorado to capture a Laguna Beach investment property. And corralled a beauty.

But a recent phone call changed all that. It was the bank. And they had horrible news. My client didn’t qualify for the loan.

What?! What?!  I pounded the banker with Hurricane Hillary. “My client packs an 810 FICO score, and over a half million greenbacks in the bank. She’s borrowing $425,000, which means a mind-boggling 35% down payment! And you’re telling me she doesn’t qualify?!!  Mr. Lender, what have you been smoking?!”

As an agent in this topsy-turvy business, I learn something with each and every transaction. And in this case, the lesson was this: The seller (also listing agent) had purchased the property as a short sale. Price -- $600, 000. He remodeled this diamond-in-the-rough and sold it for more than a 20% profit. But he had jumped the gun, whisking it back into the market in less than six months. Not a good move. In the eyes of many lenders, such a wham-bam turnaround qualifies as churning. And banks don’t mortgage churned merchandise.

So while the beleaguered Hillary and client are scrambling to plug the loan leak, we’re also wrestling with a very pressing REMOVAL OF CONTINGINCES we had contractually agreed to. Basically, this agreement stipulates that my client, the buyer, must remove all contingencies within an agreed-upon time frame. In our case, 17 days. When the banker blindsided us with the unwelcome news, the deadline was only 4 ½ days away. Once the last second ticked away, my client was legally obligated to remove all contingencies -- including a glaring loan contingency. And we didn’t even have a loan!

I fired the turbo engines and called every lender I know, breaking speed records in the process. I had to find a banker with more user-friendly underwriting requirements.  Finally, I located my white knight. ‘Yes’, said this glorious lender, ‘a loan might be possible.’

The seller couldn’t believe our loan got torpedoed because of such a minor detail. In an attempt to salvage the deal, he brought in his own lender. So now we had two rescue possibilities.  

But two lenders meant two more appraisals beyond the first one – at about $500 a pop.

Two lenders also meant two more tidal waves of paperwork demanded from my client. Required documents included pay stubs, lengthy paper trails of required down payment funds, a canceled security deposit check (and the name of the issuing bank), an explanation of how the funds found their way into that bank, and info about savings accounts. If liquidation was planned for the savings, all pertinent documentation would be needed. Liquidation of a 401k might require proof of a hardship withdrawal.

But the piece d’resistance was this – Because the home is a duplex and an investment property, our prospective lenders required a signed lease. I was roadblocked – you can’t put a property up for lease on the MLS while it’s still in escrow.

So where do I find an instant tenant? I unleashed a barrage of email blasts pleading for a worthy tenant dressed in sterling FICO scores. Finally, a leasing agent I know delivered the perfect candidate. We’re home free, right? Wrong! The seller-owner must sign the lease. But he adamantly refused, worried he’d be stuck with a tenant should the deal fizzle.  

But the pressure cooker got even hotter. We’re now ten days past our contingency removal deadline. And it's impossible for us to perform. That’s why we’re leaning toward the seller’s lender. Hopefully, the owner will offer us some leeway, confident we’ll act in good faith.

I think my client summed up our sticky situation best of all: “Hillary, we had 2 ½ weeks of smooth sailing. I now know your job has very little to do with buying a house. It’s about navigating the intricacies of putting the deal together.” To which I hasten to add, “It’s also about protecting my client.

”So here we are, locked in the bottom of the 9th inning. Two lenders are breathing down our necks for loan docs and more loan docs. And their underwriters continue pummeling us with requests for reams of pay stubs and paper trails.

How the game will end is for the fates decide. But I’m still confident my client will prevail. One thing is for sure – I’ll be sharing the rest of this drama with you in the very near future. So stay connected.

In the meantime, if want to discover your best opportunities in the Laguna Beach real estate market, contact the caring professionals at The Coastal Property Experts to schedule your complimentary consultation. We promise you'll get what you want in the Laguna Beach real estate and Orange County real estate market…much sooner than you think.

Contact The Coastal Property Experts Today  949.922.8490

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