How a HUD Section 8 Rental Receipt Can Mess Up Closing

grassyknoll and palmsNothing like a HUD Section 8 rental receipt to mess up a buyer’s mortgage closing, and listing agents are often the last to know. Most people, for example, have little idea of what a Sacramento listing agent actually does, apart from lounging about Maui over federal holiday weekends and sticking a sign in the seller’s yard before leaving. They also often assume that once an offer has been accepted by both parties, most of the work is over when that is actually when much of the work begins.

There are often more negotiations after a purchase contract has been signed. That’s just the beginning in some cases. When a buyer can’t close escrow or attempts to renegotiate, that’s when most sellers are very happy to have a strong negotiator representing them. It’s when an agent earns her full-service fee. As a listing agent, I have to be fair to all parties, but I owe my fiduciary duty to the seller, always and foremost.

We were ready to close a concurrent transaction the early in the third week of June. A concurrent closing means the seller is buying another home and both the existing home and new home will close simultaneously. We matched the closing dates. Suddenly, without warning, the buyer’s file was kicked back from underwriting. Turns out the buyers, who had been living in a hotel for a while, had rented their previous home to a Section 8 tenant. The underwriter needed to verify receipt from HUD for rents paid and HUD had not even inspected the home yet.

This is when the buyer’s agent, like many agents, looks around for a simple solution. The simple solution was to extend closing another 30 days. Since the sellers were purchasing another home, a 30-day closing delay was not a satisfactory solution to the sellers.

Dan Tharp, my preferred mortgage lender at Guild Mortgage, helped to devise a strategy. He wasn’t involved in this transaction but he had the answer for us. The answer was to provide security for the underwriter and close the file pending post-HUD receipt, and advance part of the rent pre-closing. After delivering proper documentation requesting specific performance, we closed a day ahead of schedule, and the seller received another 48 hours to move. Crisis diverted.

Photo: lounging on the grass in Maui, by Elizabeth Weintraub

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