Of course, there is nothing which prevents the buyer from holding off telling the seller that he or she has been declined for a loan to give the lender some extra time to obtain the loan denial letter. For example, on the 15th day of a 21-day financing contingency period, the lender informs the buyer that he or she has been turned down for a loan. The lender indicates that due to a heavy volume of mortgage lending, it may take longer than usual to produce the loan denial letter. In this instance, the buyer could hold off notifying the seller that he or she has been turned down for a loan until the end of the financing contingency to essentially give the buyer additional time to obtain the loan denial letter.
5 >> What if the loan denial letter is silent on the reasons for the loan denial? How do I know if the loan denial is for a legitimate reason?
This is an issue that the GAR Forms Committee is reviewing now. While the GAR Form states that the loan denial letter must not be based on certain criteria, there are some loan denial letters that are silent as to why the loan was denied. In these instances, it is impossible to know whether the basis for the loan denial is legitimate.
6 >> What is the relationship between the financing contingency and the appraisal contingency in the GAR Conventional Financing Contingency Exhibit (F64)?
The appraisal contingency operates separately from the financing contingency in the GAR Conventional Financing Exhibit. The buyer’s loan application will not normally be approved if either the buyer is not financially qualified to purchase the property or the property does not appraise for the loan amount.
With the GAR Conventional Loan Contingency Exhibit, the buyer has a specified number of days to cause the buyer’s mortgage lender to obtain one or more appraisals of the property. If any of the appraisals are low, the buyer can ask within a certain number of days thereafter for a reduction in the sales price. The seller can then either agree or not agree to the requested reduction. If the seller does not agree to the reduction, the buyer can terminate the purchase and sales contract. If the seller agrees to the reduction in the sales price, the buyer remains obligated to purchase the property and cannot use the appraisal contingency as a basis to terminate.
One challenge with the appraisal contingency is that buyers wanting to get out of the contract can try to “game” the system by having one or more lenders order multiple appraisals of the property until one of them comes in low. The buyer then refuses to buy the property unless the seller reduces the sales price even further. While the potential for abuse exists with this provision, legitimate buyers need protection if, for example, the review appraisal comes in low. The question which the GAR Forms Committee has considered in the past is whether the need to protect buyers in this situation is more important than trying to stop the harm done when some buyers try to take advantage of the system. To date, protecting buyers when a review appraisal comes in low has been the bigger concern.
With the GAR Conventional Loan Contingency Exhibit, the buyer has a specified number of days to cause the buyer’s mortgage lender to obtain one or more appraisals of the property.
A second issue which arises in this area are with sellers who want to appeal the validity of an appraisal done by the leader’s appraiser. There is not an appeal procedure built into the appraisal process in any of the GAR financing contingencies (even though it can be legitimately infuriating to sellers when an appraisal is way off the mark). The problem in this area is that even if the buyer and seller agreed to an appeal process where a new appraisal would be performed, there is no way to impose this process on the mortgage lender who is the ultimate decision maker on whether an appraisal is sufficient to justify making a loan.
7 >> What is the relationship between the financing contingency and the appraisal contingency in the VA and FHA Loan Contingencies (F63 and F65)?
While the financing contingency also operates separately from the appraisal contingency in the VA and FHA Loan Contingency Exhibits, the appraisal contingencies in these latter contingencies give the buyer much greater rights to get out of the contract if the property does not appraise. Both the FHA and VA Financing Contingencies contain what are known as “amendatory clauses” which override the other portions of the exhibit. The FHA amendatory clause provides that the, “Buyer shall not be obligated to complete the purchase of the Property or incur any penalty by forfeiture of earnest money deposits or otherwise unless Buyer has been given in accordance with the HUD/FHA requirements a written statement by the Federal Housing Commissioner or a Direct Endorsement lender setting for the appraised value of not less than $___________________.”
www.garealtor.com GEORGIA REALTOR® I 15
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