Understanding Pre-Closing Lender Delays (& What You Can Do)

Most sellers feel at ease once inspections and appraisals are done and they’re deep into escrow. But unfortunately, there’s still an opportunity for unexpected things to arise. Read on to learn what can cause a lender to delay closing and what you can do about it.

waiting-lender-delay.jpegCommon Reasons for Lender Delays

Even if you’re working with a qualified buyer that was pre-approved for a home loan, things can come up during the final approval process that delay closing. For example…

  • Determining source of funds:
    Lenders may verify where their borrower obtained the funds for their down payment, earnest money and closing costs. If a buyer has a difficult time showing an obvious paper trail that illustrates where the money came from, it can increase the lender’s risk and can delay loan approval.

In most cases, once the buyer is able to provide the lender the paperwork they requested, the approval process will move forward. Note, though, this isn’t always the case. Sometimes lenders will discover items as they dig deeper that cause them to not move forward on the loan.

Seller’s Rights When Lenders Delay Closing

As a home seller, it’s natural to be frustrated with lender delays, especially close to closing. But what can you do?

  • First, find out what’s causing the delay:
    If it’s a simple matter of the buyers needing to produce a few documents, you can ask how long it will take to come up with them.
  • Create a penalty to give buyers incentive to work fast:
    If you encounter a delay, you can tell buyers that you plan to enforce a fee for each day the sale goes beyond the original agreed upon closing date. If you go this route, make sure you get the buyer’s agreement to your terms in writing.

  • Issue a notice to perform:
    If the delay is really problematic, you can also consider filing a notice to perform – but there are pros and cons to going this route. Doing so typically provides a very narrow window of 48 hours for the buyer/lender to complete the request. While that may encourage the parties to move faster, it could also blow up the sale completely. For those reasons, this should be your last resort.

Now that you understand what can cause delays and what you should do if you encounter one, you can head into escrow prepared for any outcome!


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