I recently finally finished deal to help a buyer acquire a multi-tenant warehouse property built in year 2000.
We were fortunate to have a knowledgable experienced buyer and a reasonable seller and agent with 3 years experience.
Deals often fall apart for several reasons.
The environment for lenders has changed due to several important factors.
• Lenders have more regulation and large lenders have supervisors that want to vigorously scrutinize the loan.
• Lenders normally are not headquartered in SE Texas and do not know our state law nor contracts. This lender made decisions in California, but has 2 offices in Houston.
Mortgage brokers remind the lender to hire an appraiser to complete an appraisal with 17 days
Lenders normally do not look at a file until one or two weeks before closing date.
A lower level admin reviews the file and asks questions and wants more documentation .
Agents and buyer and sellers jump through hoops for more info or they say the info is not available …. Because.
Then the admin gives the file to a supervisor. One week before closing date – the supervisor reviews the file to ask more questions and ask for more documentation. (because they can ….. part of the job description)
Buyer and seller agents are exasperated and yell baloney and spit.
I talk about this because buyer and buyer agent have to expect this when writing the original purchase agreement.
To make this discussion flow, we should use the order of the purchase contract …. Which issues are discussed in the contract paragraph by paragraph.
In this deal, the seller delivered the contract per paragraph 6, which was 18 years old, before the construction of the building. Therefore the buyer bought a land survey with an elevation certificate and sent it to the lender.
30 days later, the lender asked for an elevation certificate. We therefore reminded the lender that they already had an
In paragraph 7 D.
The seller did not deliver all the documents required during the time of the feasibility option period, therefore the seller breached the contract.
Agent thought all docs had been provided, but was mistaken.
But we did not tell them about the breach, because the seller could have then delivered the document in question to avoid contract breach. We (the buyer) wanted to be able to get the earnest money back if buyer terminated.
In paragraph 10, The seller and agent have focused to insert early closing date. They want to know early and not drag it out but do not realize the issues are with the lender. They do not realize that the world has changed.
We needed to extend the closing date. The lender asked for signed amendment authorizing an extension of the closing date.
The buyer is at risk of losing the deal and acquisition costs …. Especially if the seller has a signed backup contract from another buyer at a higher price, which becomes effective if first contract expires.
Additionally, we are at the mercy of Acts of God.
Once I had a seller that committed suicide one week before the planned closing date.
Also, a hurricane can brew in the Gulf, thus no property hazard insurance will be issued and no lender will write the loan documentation until the hurricane is gone.
Additionally, buyer’s loan interest rate lock may expire.
I expect challenges to close on time, therefore suggest that we insert language into the original purchase agreement to allow an extension of the closing date.
Since the lender did not read the purchase contract, we had to remind them which paragraph to read in the original purchase contract.
Thus the contract did not expire.
I can tell my clients about how to insert that language into the contract.
Then 2 days before the second closing date, the lender asked for a signed amendment which allowed buyer to assign the contract to their company.
We had to remind the lender to read paragraph 22 in the original purchase contract, which already give buyer the authority to assign the contract. To take a small step back, paragraph 6 would have allow seller to get back the earnest money because there was a fault in the title commitment.
7 days before the day to close the deal, The title company notified seller that seller did not have authority to sign the deed to buyer.
Seems that seller agent should have asked a title company to open title ownership search when he began to market the property. The records showed ownership by a company. The 80 year widow had to extended the corporate franchise with the state. There was no documentation authorizing widow to sell.
Buyer signed amendment to extend the closing date. This gave time for probate attorney time to write and the necessary documents for the lender
Probate attorney decided seller needed a business attorney.
2 days before closing date, the lender asked buyer to provide binder for hazard insurance, and pay for it in advance of closing.
Never seen that before. Usually it is paid at the title company. But this buyer paid in advance of closing.
If seller had not signed at closing, buyer would have lost 25% of the cost of insurance.
It took 104 days to finally close the deal.
Coincidentally, the tenants lost water well pressure, just one day after the purchase.
The snake sagas continue in future podcasts.