QUESTION: I have been reading in the papers that many Lenders are in trouble and are going out of business or unable to fund their loans. I am worried that my Lender will not send the loan money to my settlement. What if I get to settlement and the loan money isn’t there?
ANSWER: You are correct in your observation that many lenders are in trouble. There have been plenty of news reports about Lenders who are closing their doors, filing bankruptcy, laying off employees and in some cases, failing to deliver a promised loan. In the old days, I might have started my answer by warning you to make sure that you are working with a large, name-brand Lender in order to insure that they would deliver the loan that they committed to. However, as we have seen, even some of the biggest Lender’s in the country have shut down, filed bankruptcy or left their customers dangling.
Therefore, as with any other purchase, you should be careful to do as much research as possible to determine the viability of your Lender. If you are working with a real estate agent, he or she may have some valuable insight into the stronger Lenders in the industry.
I have found that the reality of the current market is that by the time we get to settlement, the Lender has, indeed, funded the loan. When the problems first started in August, we did have a few cases where the Lender literally shut their doors just hours before the closing. In each of those cases, the buyer was able to secure a new loan within days. At this point in the crisis, if a Lender is going to shut their doors, they likely will have done it before you get to the settlement table.
Maryland law does require that on or before the day of settlement, the lender shall disburse the loan proceeds to the settlement attorney in the form of cash, wired funds, certified check, a teller’s check or a cashier’s check. When you get to settlement, the attorney will know whether the funds have arrived. If the funds have not arrived, then it is likely that the attorney will explain your options. The most likely option is to proceed with the signing of the papers. The attorney will then hold the papers and you will not be given the keys to the house until the funds have arrived, the seller has been give their proceeds and the disbursements have been made. The other option is to delay signing the papers until the funds arrive. This second option really serves no purpose other than to inconvenience all of the parties.
Keep in mind that in that extremely rare and unlikely case where the Lender completely fails to deliver the loan, then it is possible that your settlement will be delayed for several days while you obtain a new loan. If the papers have already been signed, then they will have to be destroyed. If, on the other hand, the loan funds are merely late by a few hours, and you have already signed your documents, then the settlement attorney merely has to get the sellers their proceeds and you can move in.
In order to avoid a settlement disaster, you should be in constant contact with your Lender throughout the loan process to make sure that they are diligently working on your file. Also, you should scan the Internet for information regarding your Lender. One valuable site to look at is www.ml-implode.com. Unfortunately, the ml-implode stands for “mortgage lender implode.” Of course, it wouldn’t hurt to carry your favorite good luck charm to settlement, too.