Once a seller has accepted an offer on his or her property, the home goes into escrow. During this process, the buyer and seller deposit pertinent documents. And, in the case of the buyer, deposit funds with an escrow firm until the parties meet the conditions of the sale agreement. At that point, the transaction can proceed. Unfortunately, the escrow process can fail. These escrow failures are usually referred to as a home falling out of escrow, something we at Escrow Hub LA have seen happen many times.
Here are some of the most common reasons a home falls out of escrow:
The Buyer Fails to Qualify for Financing
Although mortgage lenders pre-approve a lot of buyers, circumstances can change. For example, the buyer might lose his or her job, accrue new debt or do something that negatively impacts his or her credit score.
The Buyer’s Inspection Uncovers New Defects of the Property
It’s always advisable to have a home inspection performed during the escrow process. If the inspection uncovers any defects that impact the value of the home, the buyer can ask the seller to fix them or lower the price. If the seller refuses, the buyer has the right to back out of the deal.
The Lender’s Appraisal Comes in Lower Than the Offered Price
The mortgage lender will commission an appraisal to ensure the property it’s underwriting is worth the price. According to Investopedia, if the appraisal comes in lower than the offered price, the lender won’t approve financing unless the seller lowers the price or the buyer comes up with the difference.
There Are Issues With the Title
The mortgage lender requires a title report and title insurance to ensure nobody. But the seller has any claims to the property, and there are no liens on it. If the title report uncovers any issues — or clouds — the seller will need to remedy the situation or release the buyer from the agreement.
There’s Human Error
Everyone involved in the real estate transaction has to fulfill his or her responsibilities according to the escrow agreement. If someone drops the ball, the home will fall out of escrow. The reason being that not all of the contingencies have been met.
The Buyer Gets Cold Feet
Zillow reports that some buyers — especially first-time home buyers — simply change their minds about making a big financial commitment. In many cases, they try to find some loophole that allows them to back out.
Prepared and Aware
For homebuyers, it’s important to know that if the home falls out of escrow because their loan isn’t approved, they can sometimes apply for an extension of escrow, as SF Gate reports. Their real estate agents can help them draft an “Extension of Time Addendum.” This document, if the sellers agree, provides them with more time to get their mortgage approved. Depending on the reason the lender declined the loan, this may involve improving their financial situation or even finding a new lender. Escrow failures don’t need to be the end of the road.
If the sellers are responsible for the escrow falling through due to undisclosed issues with the property or title, they can try to address the situation within a given period of time if the buyers agree. If they’re able to resolve all issues to both parties’ satisfaction, the transaction can then proceed as planned. In general, it is best to prevent escrow failures before they have a chance to happen. Our team at Escrow Hub has managed to avoid otherwise failing escrow situations. If you are in need of assistance, contact us today.