Monthly Archives: April 2013

The Importance of a
Solid Commitment for Financing

mortgageMost residential real estate transactions include a financing contingency which typically provides that the Buyer has until a certain date to obtain a commitment for mortgage financing.  This contingency has never been as important as it is today, but in order to maximize their protection under this contingency, a Buyer needs to understand the potential dangers involved in the ‘standard’ financing contingency and realize that once the contingency is satisfied, there are few remaining protections built into the agreement to protect the Buyer.

In order to preserve the contingency, it is standard that the Buyer must submit a complete mortgage application by a certain date.  Submitting a complete loan application is a relatively simple process, and can typically be completed over the phone, or in some cases via the internet.  It is extremely important to submit the application by the required date.  With the loan process taking longer than ever, Buyers should take care to start the financing process as early as possible in order to meet the commitment and closing dates.

As the transaction proceeds, some mortgage lenders will issue a loan commitment in haste in a misguided attempt to impress the client and/or the Realtors involved in the transaction.  In some cases where a commitment is issued far before the expiration of the mortgage contingency the Realtors involved may comment how great the loan originator or lender is, but in reality the originator may have unwittingly put the Buyer at risk.

Quick commitments usually are not solid commitments.  If a commitment is issued with conditions that could jeopardize whether the Buyer (or the property) will ultimately be granted the loan (ie. subject to an appraisal, homeowners’ association questionnaire, etc.) the loan originator may be putting the Buyer’s deposit in jeopardy.  I have even seen loan commitments, from reputable lenders, which were issued subject to the review of the Buyer’s income tax returns or, in one case, an FHA approval for the condominium project.  In both of these cases the lenders issued commitments but ultimately denied the loans.  A Realtor who is acting as a Buyer’s agent should recognize that a commitment which is not a ‘solid’ commitment does nothing for the transaction and ultimately puts the Buyer’s deposit at risk, and should insist that such a commitment should not be issued.

Having a commitment, whether or not the lender ultimately delivers on said commitment, satisfies the mortgage financing contingency.  It is at this point the contingency no longer protects the Buyer and the Buyer must fulfill their obligations under the Purchase and Sale agreement or be in default.  In the past I have seen a situation where the lender issued a clean commitment three weeks prior to the expiration of the financing deadline.  While this is seemingly a good thing, what the lender did not know when they issued the commitment is that ‘life happens’.  This particular Buyer lost their job and as a result was no longer eligible for the loan.  This is just one of many issues that could arise, lender insolvency being another, where the ‘early’ commitment could come back to hurt the Buyer.  In these instances, the Buyers no longer had the protection of the financing contingency and their deposit was in jeopardy.

While there is no way to totally eliminate risk to the Buyer in a real estate transaction, using a good Realtor in the capacity of a Buyer’s Agent and the use of a qualified real estate attorney will go a long way toward managing that risk.  A good real estate attorney will typically modify the purchase and sale agreement to address the issue of receiving a ‘less than solid’ mortgage commitment or even any potential lender insolvency.  Also, it is best to work with a mortgage lender who realizes how their actions could put you at risk.  Ideally, your lender will not only have a mortgage commitment, but a clear to close, which is the last step in the financing process prior to closing, on or before the expiration of the mortgage contingency and should only issue a commitment on the actual day the contingency expires.

The Buyer is best served when their Realtor, attorney and mortgage lender all understand their respective roles in making the transaction as smooth, and low risk, as possible and understand the financing contingency.

About The Author: Douglas M. Mercurio, Esq. is the founder and principal of the Law Office of Douglas M. Mercurio, PC. where he regularly represents Buyers, Sellers and Lenders in residential and commercial purchase, refinance and reverse mortgage transactions and has closed thousands of real estate transactions. Doug can be reached at or by phone at 978-276-3100.

The spring market is here but, it seems a little different this year. Traditionally by April there are quite a few properties available for sale.  However in our current market this is not the case.  Listing inventory is down & when the supply does not meet the demand multiple offers and buyer frustration will follow.

When sale prices start to rise, it can also create a problem with bank appraisals.  Before a buyer can obtain a mortgage, the bank sends an appraiser to verify the sale price.  If there are not enough prior sales to compare, it can be difficult to justify the value. When this happens an adjustment must be made to either the sale price, or the buyer’s down payment. Otherwise the bank will not issue a commitment letter to the buyer.

In a market like this buyers have to be ready to sign on the dotted line if they want to be successful.  This is difficult to do when making such a big decision.  When investing a large amount of money time is needed to consider all options.

If you are thinking about selling, now is the time. The market is on the rise & with the lack of competition you could spring into a great deal!

About the Author: Sharon Potts is a Realtor at RE/MAX Legacy and looks forward to the  the spring market! You can contact her directly through her website at