Real estate has been a real yawner lately. Inventory remains down, and now we are starting to feel the lethargy in the market among buyers which seems to strike this time every year. It’s the lazy days of summer.
So, in a weak attempt to manufacture intrigue, I bring you our latest installment from the Boring Stuff files, this one titled, “30-day escrow? Good luck with that.”
In yet another attempt to protect us from ourselves, we have a new regulation on the horizon, this one involving lending. From Wells Fargo, I received this:
On July 30, 2009, the new Housing and Economic Recovery Act (HERA) laws will go into effect. They require all mortgage lenders and mortgage brokers to help prevent deceptive lending practices and protect customers by helping them become more informed.
Cool! Only, what this really means is that your closing date, the one written into your contract around which you are scheduling moving trucks, utility transfers and a going-away block party, is rather meaningless. If you write in a closing date 30 days out, dream on.
Here is the official release from Wells explaining the implications of the new laws to the escrow time line. If you are long on free time, read it, then rejoin me at paragraph six below for a recap. (Maybe it’s paragraph seven. I’m not sure if I am supposed to count the blockquote as a paragraph, but you get the point.)
If you got to part with the handy little closing calendar before dropping off face down in your coffee cup, you see that we are given a tidy 30-day closing scenario. There are a few “problems” with the calendar, however. That is because the calendar was intended for only those buyers and sellers living in Perfect Escrow Happy Land. In San Diego, where most of my clients live, the transaction is rarely perfect. And I am not even talking about mold, swarming bees, leaking pipes, the buyer’s vacation, the seller’s vacation, the other agent’s vacation, or an escrow office which won’t return phone calls or emails (all of which we were challenged by this past week). Nope, I’m just talking about the financing component of the transaction.
Here are the “biggies” in the moving parts department:
- Day 1 – Homebuyer makes phone application for loan. Yeah, right. I’m not saying it couldn’t happen. In fact some buyers who are really together come to the table fully pre-approved. I’m just saying that most of the time on Day 1, the buyer is tied up in meetings all day at the office, and on day two or three, instead of making a phone application, they are interviewing lenders, shopping for the best rates and terms. Or they are visiting their grandmother in Lithuania, a trip they scheduled in 1992 and simply can’t cancel.
- Day 3 – Initial disclosures are printed and overnighted to the buyer. Yeah, right. I’m not saying it couldn’t happen. In fact, some lenders are all over it and bust their hineys to meet the client’s needs. I’m just saying that most of the time on Day 3, the processor assigned to your file has also been assigned to 987 factorial to the 23rd power other files and is really busy and is “working on it” but then goes home sick, but it’s just as well because the computer system is down.
- Day 6 – Disclosures received by customer in overnight mail. Yeah, right. I’m not saying it couldn’t happen, but see “Day 3” above. And even if it did happen, the customer will be at Legoland for his nephew’s birthday party when the FedEx package arrives, so the 16-year-old son of his next door neighbor will sign for it and put it in the pantry just before leaving for a three-week study abroad program in Lithuania.
- Day 7 – Earliest day to collect upfront fees (or, in Lithuanian, order the appraisal). Yeah, right. Granted, assuming that the customer did what he was supposed to do, the lender did what they were supposed to do, and the neighbor’s kid happens to be the one responsible teenager in the Delta Quadrant, it could happen. But, even if you have hit on all cylinders, the loan processor just returned from sick leave and is busy getting “caught up,” so your credit card is safe for now.
- Day 13 – Earliest day to close if no appraisal is required. Customer: “I am calling to see if the appraisal has been ordered.” Bank: “Appraisal? Hah! We don’t need one of those! How about we just close this thing today? The wire is on it’s way!” Yeah, right.
- Day 23 – Appraisal must be completed and mailed to the homebuyer 7 business days prior to close. Not fair! Now they are counting backwards. The reality is that, assuming your appraisal was ordered on Day 13, chances are you have not seen nor heard from anyone resembling a valuation professional. Or, your agent did meet someone with a tape measure at the property a week ago, but he was jet lagged, having traveled from Nebraska for this assignment, and he returned a value approximately 112% below the contract price, which caused the entire deal to crater on Day 20, which means we aren’t really even having this conversation. Oh, and by the way, we are on Day 23 in a state where the standard contract requires that the buyer remove all contingencies, including loan and appraisal, on Day 17. So, yeah, this could work.
- Day 30 – Buyer can sign/close (emphasis added). Yes, the buyer can sign and close today, assuming he dreams in color. First, the buyer can sign/close today if everything has gone perfectly according to the handy Wells Fargo calendar, which it has not. Secondly, the buyer can sign/close today if everything has gone perfectly according to the handy calendar and if he lives in a county other than San Diego, say, one in Lithuania. In San Diego, there is not a big pile of purchase money stacked at the center of the signing table just waiting for deposit once the ink has dried. Rather, loan documents typically go back to lender when signed for final review. (I am tabling the discussion of table funding here.) Review times are ofter 48 hours, at which point funds are requested, and everyone spends the next 24 hours playing “wait for the wire.”But, let’s assume that the pretend big pile of cash exists at the signing table. The San Diego County Recorder recently did away with the practice of recording “special” (late day). So, in order to record on Day 30, you must fund the day before (which is Day 29, using “old” math).The bigger issue yet is what they haven’t told you. You got lucky and your appraisal actually came in on target. If you know anything about the way we do things this month, you know that this triggered an appraisal review. Sometimes, this is just a desktop review (see Day 3 for expected review times), but often it is a brand, new, breathing appraiser who must appraise the property all over again. Whee! Since our calendar alotted 10 days for the first appraisal to be ordered and submitted, we must assume that this second exercise will take approximately 14 weeks.
Of course the one thing I didn’t address is that fact that if the buyer’s annual percentage rate changes by more than .125%, this triggers the requirement that a new Truth in Lending Disclosure be issued to and reviewed by the buyer (add 7 days, rinse and repeat).
The most important take-away is that as a buyer or seller, you really need to care that both the loan and real estate professionals involved in your transaction are tracking the process and generally know what the heck is going on at all times. This sounds like a reasonable expectation; so often it is unfortunately not the case.