“Bookends” at Beginning, End of Loan Process
[Editor’s Note: The views expressed here are solely those of Ross Kaplan, and do not represent Edina Realty, Berkshire Hathaway, or any other entity referenced. If you need legal advice, please consult an attorney.]
As anyone who’s recently bought or sold a home in Minnesota knows, a Pre-approval Letter signifies very little.
Issued by a lender to a borrower, then delivered to the prospective Seller along with the Buyer’s offer, all it really means is that — based on the lender’s superficial review of the Borrower’s finances — the Borrower appears qualified to buy the home in question.
Nothing in the Pre-approval Letter obligates the Lender to actually lend to the would-be Borrower/Buyer.
Nor, for that matter, does anything in the Pre-approval Letter obligate the Borrower to borrow from the lender issuing the Pre-approval Letter.
Should the Buyer’s finances not pan out, the home not appraise, or the Buyer simply decide not to buy the home in question — the Seller has no recourse.
“Written Statement,” Defined
Which is where the Written Statement comes in.
Typically due 3-4 weeks after the Buyer and Seller have entered into a Purchase Agreement and resolved any inspection issues, the Written Statement has real teeth.
As defined in the standard Minnesota Financing Addendum, it states that the lender has finished qualifying the borrower, and that the home in question (the collateral securing the mortgage) has successfully appraised.
Once the Buyer delivers the Written Statement to the Seller, the Seller knows that the Buyer’s financing is in place — and the Buyer’s earnest money becomes non-refundable.
Ahhh . . . but what if the Buyer doesn’t deliver the Written Statement by the deadline prescribed by the Financing Addendum?
Sellers have the option of: a) cancelling the deal up until the point the Buyer delivers the (tardy) Written Statement; or b) waiting until the closing date, at which point the deal cancels automatically.
Of course, if the Buyer’s Written Statement is overdue and the Seller is willing to give them more time, nothing prevents the parties from simply crossing out the original deadline, substituting a new one, then both initializing the change.
Same result, much less complicated.
Alternatively, a Seller who doesn’t want to wait on the Buyer’s Written Statement — and who presumably has some leverage — can always insist on a clause providing that the Buyer’s earnest money shall become non-refundable once the Buyer’s Inspection Contingency is removed.