Saturday, February 14, 2009

Drawing your Downpayment from an Investment or Retirement Account? DO IT EARLY!!

If you are in the process of purchasing a home, and you are planning to make a withdrawal from a retirement account (e.g. 401k, IRA, etc.) or an investment account (mutual funds, stocks, bonds, etc) - do yourself a favor and make arrangements to "liquify" these funds well in advance of your close of escrow date. Many people who own these accounts are unaware that it takes a little bit of time to take funds from these accounts.

Case in point...I have a short sale listing that was approved last month, and the short sale lender allowed the buyer 30 days per the terms of the approval to close the escrow. Our close of escrow was supposed to be yesterday.

The buyer for this property obtained a small mortgage loan, and the majority of the the purchase price was coming from a 401k. The buyer signed their loan documents on Monday, and their loan was scheduled to fund on Wednesday - phew!...well ahead of schedule before Friday when we were contractually supposed to close escrow. The problem with this equation? On Tuesday, the buyer contacted the firm that manages their 401k, and requested their downpayment be wired to escrow the next day. UH-OH!

It takes time to liquidate accounts like this! They called after the close of the market on Tuesday (remember, the markets are on Eastern Time), and were informed that once their shares are sold, it takes 3 business days to send the money per some federal regulatory guidelines. THIS IS CREATED HUGE PROBLEM!

The buyer's agent and I had been in frequent contact throughout the approval process and during escrow, and she had assured me that the buyer's loan officer and investment banker were on the same page with the timelines...wrong. She called me in a panic on Tuesday evening with this news. It was after 5pm, so I could not call the short sale lender to let them know we would not be able to close escrow on time until the next morning.

Let's just say I did not sleep well Tuesday night!

Extensions to the close of escrow date on a short sale are NOT ALWAYS granted. Depending on the short sale lender, sometimes you have to start the process over if you can not close within the window of time they specify....and with this specific transaction, there was an impending foreclosure, and the auction date was set for just a few days after our scheduled close of escrow.

I called first thing Wednesday morning and explained the situation to the short sale lender Loss Mitigation specialist...luckily, when they had issued the approval, they had postponed the foreclosure auction date. I had to wait all day for special management approval, but by the close of business on Wednesday, I had a written time extension from the lender! Phew! easily could have gone the other way.

So the moral of the story - make sure you have enough time to get your funds. I would suggest that you direct your account holder to make those funds liquid at least 2 weeks prior to your close date...

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