What Sacramento Buyers Need to Know About Loan Contingency

When to remove the loan contingency is specified in the purchase contract.

What home buyers don’t know about a loan contingency can come back to bite. It’s not just home buyers in Sacramento who might not understand how a loan contingency works, either, it’s also some of the mortgage lenders. I can’t count the number of times I’ve heard a mortgage loan officer tell a borrower on the due date, we’re not ready to release the loan contingency yet. What?

If I get wind of it, as a Sacramento listing agent, you can bet hell is gonna break loose. For starters, I represent the seller, not the buyer. If the buyer is not ready to release her loan contingency on the date it is due because her lender is dragging feet or her lender feels “uncomfortable,” that is not my seller’s problem. It is not my problem, either. It is the buyer’s problem.

Because the likelihood is that purchase contract says the buyer will remove the loan contingency within 21 days. This does not mean the buyer has a loan contingency that runs all the way to closing. It means the buyer has agreed to release the loan contingency within 21 days. If a buyer had no intentions of honoring the purchase contract, well, that is pretty dishonest. I’ve had buyer’s agents tell me, “Let me check with the lender to see if it’s OK to release the loan contingency.” That is not the lender’s call.

Makes about as much sense as asking your next-door neighbor. Or one of those creepy guys on Fox News.  I guess you could consult a Magic 8 Ball. If the buyer doesn’t want to release the loan contingency, boo-hoo.

This situation is magnified in a hot market like our seller’s market in Sacramento this spring. We might have a backup offer, it could be all cash and ready to close in 5 days. The market could have gone up during our first 3 weeks of escrow. The seller could decide for any reason to enforce the contingency release. The seller can issue a demand and cancel the buyer within 2 days if the buyer doesn’t release the loan contingency. Yet, time and time again a loan officer will try to stick her unauthorized nose into the purchase contract by telling a buyer not to release the loan contingency.

This makes no sense. The lender is not a party to the contract. Potential home buyers should discuss contingencies with their buyer’s agents when they sign a purchase contract. If a buyer needs a little more time, the best course of action is to bring this to the seller’s attention by submitting an extension of time addendum and requesting additional time. However, sellers are under no obligation to grant the extension. Sellers can refuse. And then where are you left?