It's Not Just a Piece of Paper-Communicating About The RPA: Notes From the Trenches of AgentQ

Introduction

This article is about an open discussion for dialogue to get real estate agents, loan officers, lenders, mortgage brokers and bankers to communicate with each other about the clauses in the Residential Purchase Agreement that trigger deadlines that could cause the contract to cancel. I decided to write this article because it seems like the contract is just a piece a paper to some people. It's Not Just a Piece of Paper, but a legal binding document that have repercussions for non-performance. I am not and attorney. This is not legal advice, but words of wisdom from my personal experiences in the trenches as a Realtor.

Buying or Selling Real Estate 

A home sale or purchase is one of the most important, life-changing decisions a person can make. The real estate process has long been looked at by consumers as a closed door transaction, a huge personal life event that they must entrust to real estate agents. Therefore, the transaction should be transparent. Real estate agents should be willing to educate and re-educate the consumer, if that's what it takes to help them get through the buying or selling process.  

Residential Purchase Agreement "Contract"

The residential purchase agreement is not just a piece of paper. It's a contract that should be taken serious. It's a legal binding document that states the buyer and seller terms and conditions regarding the purchase of real estate. It's also gives the buyer and seller exits out of the contract.

It is imperative that the loan officer or lender understand the possible ramifications of the contract. The loan officer or funding department should NEVER assume that the seller will give the buyer an extension of time for the appraisal, loan or funding. 

Friendly Reminder Fiduciary Duty

It's not just a piece of paper. It's an obligation. The contract describes a real estate agents' fiduciary duties. It has many clauses, terms, conditions and deadlines. Real estate agents should have the utmost care, integrity, honesty and loyalty in their dealings with sellers and buyers.

Fiduciary is an individual in whom another has placed the utmost trust and confidence to manage and protect property or money. The relationship wherein one person has an obligation to act for another's benefit. 

Just a friendly reminder why you care so much about your buyers and sellers. 

Building Good Communication Skills

Loan officers to build a good relationship with the borrower(s), start out by being honest about the pre-approval, loan process and their credit. Tell the buyer(s) whether they qualify for a loan (don't keep them waiting for weeks for an answer because you don't want to give them bad news, counsel them about their credit, too busy with taking other applications, at least give them a courtesy call whether its yes or no), explain the process to the consumer and make sure you educate the them throughout the entire process.

You can start out by telling them what is the difference between a FHA and CONVENTIONAL loan. I'm surprised every time a buyer tells me why can't I buy a house that they like or have been looking at on Realtor.com, Zillow.com or any other real estate website. When I tell them the seller terms of financing doesn't accept FHA financing- they always tell me their loan officer didn't tell them that. Explain to the consumer what the difference is between FHA and Conventional financing. There seems to be a lack of communication in relaying what is the difference between these two loans.

Loan officers advise your client what the criteria is to purchase a FHA property. Most consumers don't know that they can't just purchase any home with it or that it must meet certain FHA standards-they truly need to know this information. Make sure you are clear about what type of loan the borrowers are obtaining and give them an option, if it's possible with FHA and Conventional so when their shopping for a home they can make the decision to purchase FHA or Conventional. Handbook: https://www.fhahandbook.com/blog/difference-between-fha-and-conventional/. Let them know if their pre-approval is FHA or Conventional. Half the time when I talk to buyers they don't know what type of pre-approval they have in their hands. It totally amazes me. 

Brief Explanation of Conventional and FHA Financing 

Here’s the primary difference between these two types of home loans:

• A conventional mortgage product is originated in the private sector, and is not insured by the government.
• An FHA loan is also originated in the private sector, but it gets insured by the government through the Federal Housing Administration. This insurance protects the lender, not the borrower.

A conventional mortgage loan can also be insured. But in this case, the coverage comes from a third-party insurance company within the private sector. It does not come from the government. That’s why it’s called private mortgage insurance, or PMI.

Loan Officers, most importantly truly get to know your client. Please don't always send them to an online application to fill out. You will be surprised how many consumers do not fill comfortable with this process. Take note that some people prefer to talk to a real live loan officer  so give that option no matter how busy you are. Going the extra mile will get you many referrals.  

Short story, I had a buyer who wasn't computer savvy. I felt like his loan officer should have known that since she took his application and saw what type of work the buyer did for a living. One would think, if you have a job that doesn't require you to use a computer most people usually just use their iPhone or Android to read emails, play games, listen to music, GPS, etc. It's more of a toy. Now he could use a computer, but wasn't good with reviewing emails that contained links, instructions or downloading attachments. After two weeks, I called his loan officer to follow-up on the appraisal. Much to my surprise, she advised that she could see the borrower had clicked on the link, but didn't pay for the appraisal. What is that a sign of if you know the borrower has money?  Perhaps you should pick up the phone and call the borrower(s). Long story short, during the home inspection, I asked him if he needed assistance with the appraisal. He said yes and we used my iPad and we walked through the links together. 

Loan officers due to TRID, it making you communicate more with the borrowers and the escrow officer in the transaction. Don't assume that everyone knows how to read just because they have a conversation with you or knows how to download the disclosures. If you are sending the borrower(s) disclosures, call or text them and let them know so they don't sit in the inbox for days. Never assume no matter how smart the borrower may appear that they understand how to sign electronic disclosures.

I had a client that couldn't figure out how to access the disclosures. Why? The same problem that everyone has - SHE DOESN'T LIKE TO READ AND THAT IS THE CASE WITH MOST PEOPLE NOWADAYS. Here's what the issue was why she couldn't access the documents. The first email gave her the instructions on how to access the application, disclosures, etc. and the second email gave her the user name and password so she could get into the system. Because the borrower didn't read the emails completely she believed that no instructions had been emailed to her and contacted me numerous times telling me that she couldn't get into the electronic documents to sign them.  

Real estate agents to build good communication skills with your loan officer, lender, mortgage broker or banker, be clear about what your needs are at the beginning of the transaction. You should establish your preferred method of communication especially, if you are working with a new loan officer for the first time. Communicate your work style and expectations. Be upfront about what you need. It's the best policy.  

The most important communication in financing the home are the deadlines in the contract that the lender is responsible for handling. Once the offer is accepted and in escrow, the baton is passed to the loan officer to process the loan. With that being said, the agent should communicate what these deadlines are even if the loan officer has a copy of the contract. Agents don't expect the loan officer to keep tract of the contingency removal deadlines. He or she has too many loans files. Give them the deadline and implement a system to follow-up.

Communicating With Your Loan Officer

TRID has actually forced the loan officer, the borrower and escrow officer to communicate. There is, however, a lack of communication between the real estate agent and the loan officer in the transaction. It seems to be a common practice, that initially there is open communication about the loan, but once the offer gets accepted you rarely hear or are given status updates from the loan officer. There is little follow-up.

Straight up!  It's not just a piece a paper, but a contract. As you can see, I'm very passionate it about this topic because loan officers, lenders, mortgage brokers or bankers need to take the residential purchase agreement serious.

There is a lackadaisical attitude about the contract. It's not just a piece of paper. It's an accepted standard in the industry and you can always count on the fact that all the paper work required to process the loan will NOT be processed before the 21 day deadline as stated in the contract. The Buyer has 21 days after the offer is accepted to remove the loan contingency if that is included in the contract. Not all contracts have a loan contingency so I'm only speaking about contracts that have this term. 

If you are a loan officer on the transaction, you should communicate with the real estate agent if you know the conditions will not be met and approved when it’s time for the agent to remove the loan contingency. Give the agent at least 5 to 7  days notice. Why? So the buyer's agent can contact the seller's agent and discussion the reason why the loan conditions have not been met, ask for an extension and have enough time to prepare an addendum or extension. Do not take for granted or assume that the seller's agent will grant an extension. By communicating effectively, it makes for good business relationships with everyone in the transaction and facilitates and smooth transaction. 

STOP believing that the seller will always give the buyer and extension OR more time can be added to the contract!

These are always three major deadlines that concern me that I have no control over in the transaction. These days could be shorter or longer if the buyer and seller modify them.

• Appraisal 17 days after acceptance: Ordering the appraisal, scheduled and completed appraisal back in time. 
• Loan contingency removal 21 days after acceptance: Ability to get all docs from borrower, all conditions met, underwriting, and final approval. 
• Funding: Not meeting the deadline for funding can crash the transaction   if the contract states the purchase must be funded and closed by a certain date. There are reasons for these terms in the contract and it should never have been assumed that they can be altered. 

Why Communication Is Essential Between the Real Estate Agent and Loan Officer

Story 1: My buyer had financing with a BANK. I had never worked with this loan officer before. I sent him email introducing myself, provided all deadlines and picked up the phone the next day to call and to discuss the transaction - phone call was to build a business relationship. My main point was meeting the deadline for the appraisal and loan. I confirmed the dates for contingency removal and he indicated it would be no problem. We are ahead of the game because your borrower has submitted all paper and we go to good. GREAT!

One Saturday morning, I got a call from my buyers stating that their loan officer instructed them to wire $70,000 to escrow this was after the initial deposit of $15,000. I asked why. Mind you there are terms or an addendum to the contract regarding the additional money being wired to escrow. 

The buyers couldn't explain it to me so I advised my buyers not wire any additional money to escrow until after I talk to their loan officer. I sent an email to the loan officer asking why. The BANK loan officer's response was: "let him do his job" "stay in my lane" and "he can't discuss his clients' transaction with me."

Needless to say, Monday we had a discussion!

Why was it so important for the BANK loan officer to COMMUNICATE regarding this matter?

First, let's start with it's my fiduciary duty to the buyers who placed their utmost trust and confidence in me to manage and protect their property or money is the reason why. What would be the outcome of this scenario if the buyers decided to cancel the contract? The BANK loan officer instructed the buyers to wire additional funds to escrow without an addendum to the contract. By NOT communicating with real estate agent - it left no opportunity for the agent to communicate with the seller's agent or write an addendum to the contract BEFORE the money was wired. The loan officers’ instructions are outside the contract and the terms agreed to by the buyer and seller. THAT'S A PROBLEM IF THE TRANSACTION GETS CANCELLED. 

I posed this question to the BANK loan officer...

QUESTION: If this transaction should cancel, the $70,000 that you instructed the buyers to wire escrow that was not a part of the contract that was written what will happen if the seller and buyer get into a dispute of this money? There is no addendum? Will the BANK give the buyers back their money?

ANSWER: Honestly, my sincere apologies to you but I do this all the time and no real estate agent has ever told me this before. Now I can see how this could be a problem.

Being a team-player and having effective communication can avoid a lot of issues and complications in a transaction. Had the BANK loan officer simply communicated with me why he need more money in escrow, I could have prepared the addendum. Communication is the KEY to success. Working as a team will alleviate these types of issues. 

Long story short - I contacted the seller's agent and advised that I would be sending over an addendum to the contract for the money wired to escrow. The seller signed it and we closed the transaction about 8 days later. Never leave your client whether seller or buyer's behind uncovered. 

Story 2: In a transaction I had, the buyers were flagged by the IRS for Identify theft because the street was spelled wrong on her income tax return among other mistakes. The Loan officer contacted me right away after he received Rejection Code 10 three time. We put our heads together and figured out how to resolve it. WORKING TOGETHER AS A TEAM will help you resolve problems faster and effectively. Keeping the line of communication open is essential to meeting the deadlines in the contract. I put together it cheat sheet so the next time the loan processor has a problem use it as a reference. Do you know how long it takes the IRS to respond by mail to this issue? We would have missed the time to close escrow just dealing with this one little issues. 

Story 3: This is the main reason why I wrote this article. The loan officer, mortgage broker, funding department - anyone dealing with the processing and funding of the loan in the transaction, know that It's Not Just a Piece of Paper, but a legal binding document that have repercussions for non-performance. 

Briefly, a buyer hired me to represent her and terminated her dual agency. The dual agent represented both the buyer and seller in the transaction. Although dual agency requires the agent to serve both the buyer and seller equally and fairly that was not the case. The dual agent did everything possible to get the buyer to be in breach of the contract so she could benefit financially. Long story short, we manage to get into escrow and meet all the deadlines. Due to confidentiality, I will not provide exact deadlines.

The end result, the lender did not fund the loan according to the deadline in the contract. Funding department asked me after the deadline to obtain an extension. The seller said NO! Now the contract null and void. Why? Partly in due to the contract being viewed as "Just a Piece of Paper." What will be the outcome of this transaction I have no idea, but I say that loan officers, lenders, banks, funding departments STOP thinking you can always get an extension and process that paper work timely. Real estate agents write those contracts longer if you know the lender can't meet the deadlines in the contract. 

Work together as a team! 

10 questions you should ask lenders regarding TRID: https://www.inman.com/2015/10/06/10-questions-you-should-ask-lenders-regarding-trid/ 

Effective Communication With a Lender: Tips From a Former Loan Officer: https://www.veteransunited.com/realestate/effective-communication-with-a-lender-tips-from-a-former-loan-officer/

For Smooth Closings, Don't Drop the Ball: https://realtormag.realtor.org/sales-and-marketing/sales-coach/article/2006/02/for-smooth-closings-dont-drop-ball