THE NEW FINANCING ADDENDUM - BUYER’S AGENTS BEWARE –

THE JULY, 2008 FINANCING ADDENDUM
- BUYER’S AGENTS BEWARE –

(Posted August, 2008. Addendum has since been modified.)

The recently revised "Financing Addendum" issued by Northwest Multiple Listing Service appears likely to create problems for buyers in at least three respects.  These issues could put brokers and agents at risk of claims from buyers who lose their deal, unless the agent has very clearly explained the issues and consequences to the buyer.

 First, before the end of a stated period of (the default is 30 days), the buyer must either waive the financing contingency or provide to the seller a letter from the buyer's lender which states the date of the loan application, the current status, and any remaining conditions.  The burden is on the buyer to provide the letter.  The seller does not need to request it.  Thus, if the buyer neglects to obtain such a letter on time (read that, for most buyers "my agent forgot to remind me to get it on time"), or if the buyer's lender is unable or unwilling to provide the necessary letter, the buyer must waive the financing contingency or risk forfeiture of the earnest money.  Even if the letter is provided in a timely fashion, the seller may demand an updated letter every five days.  It is doubtful that buyers will be able to get this type of letter from their lender.  They are certainly going to meet resistance if a letter is requested every five days. 

Second, if the buyer's financing fails, the buyer will not be able to recover the earnest money without written confirmation from the buyer's lender stating the date of application, that the buyer possessed sufficient funds to close, and reasons for denial.  Most letters will provide only the federally required statement of reasons for denial.  It is extremely unlikely that any lender would be willing to write a letter stating that the buyer possessed sufficient funds to close, because in most cases they have not gathered that information as part of their underwriting process.  Even if the buyer had the money, the earnest money would be forfeited in the absence of a letter from the lender.

Third, there are likely to be numerous problems for borrowers who are working through a loan broker.  The loan broker is not the "lender".  Therefore, a letter from the loan broker stating the status of the financing or the reasons for the loan denial (or that the buyer "possessed" sufficient funds) would not be sufficient. 

Brokers and agents must fully familiarize themselves with this new form and review this form carefully with buyers to be sure that they are aware of their documentary obligations, and the consequences of their failure or inability to do so.

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Thomas H. Oldfield is a partner in the law firm of Sloan Bobrick Oldfield and Helsdon, P.S., and is also a principal of SB&OH Exchange Accommodators, LLC.  He has represented clients in real estate and business matters since 1970.  He also served as Supervisor of Banking for the State of Washington from 1985 to 1991 before returning to private practice.