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Problems when Closing on a House

After a long search, seemingly endless mortgage application forms, and grinding negotiations with the seller, you have had your offer accepted on a new house.  You’ve signed a purchase agreement, put down your earnest money, and now you’re ready to finally relax.

But don’t get too comfortable just yet.  There are still things you need to watch out for to make sure that the deal actually goes through.  There are many problems that can arise when closing on a house.  This article lists the most common problems that can occur so that you can work ahead of time to prevent them.

The Bank Won’t Pay all of the Purchase Price

Banks will usually require a home appraisal prior to closing to ensure that the loan they are giving the homebuyers is secured by property of equal or greater value.  If the appraisal comes back low, the bank will probably only agree to provide a mortgage up to the amount of the appraisal, which will leave the homebuyer on the hook for the remaining amount.  This can present a major problem for homeowners who are already struggling to scrape together money for a down payment, insurance, closing costs, etc.  It doesn’t have to prevent you from closing on a house, however.  See if you can get a second opinion from a qualified appraiser.

The Bank Won’t Pay ANY of the Purchase Price

If you have filled out your mortgage paperwork fraudulently or incorrectly, the bank may refuse to give you the money to purchase the house.  Unless you have a lot of cash lying around, this could present a major obstacle to closing on a house.  Check-in with your mortgage provider to make sure that everything looks good with your mortgage application prior to closing.  If there are any problems, discuss ways to resolve them with the provider.

There Are Issues with the Title

Prior to closing on a house, a homebuyer must do a title search and obtain title insurance.  Usually, homebuyers will hire a title company to do the search and issue the insurance.  If the search reveals any clouds on the title to the house, it could prevent the closing from going through.  Typical clouds on title include a federal or state tax lien, a claim on the property by a co-owner or relative, or a contractor’s lien. 

Inspections Reveal Major Problems with the House

Most lenders will require you to perform inspections on the house to detect pest infestations (especially termites) and structural problems with the house (damage to the foundation, electrical problems, etc.)  Even if the lender doesn’t specifically require them, it’s a good idea to have the inspections performed anyway – it can save you frustration and heartbreak down the road. 

If either of these inspections reveals major problems, it can delay the closing while you negotiate with the seller to remedy the issues.  Make sure your purchase agreement has clauses that allow you to walk away if certain contingencies arise.  This will make it much easier to have the seller fix the problems uncovered during the inspections, or allow you to cancel the purchase altogether if the problems are too severe.

You Can’t Get Insurance

Insurance records contain details of previous claims made for a house.  If there has been a major insurance claim filed for the house you’re trying to purchase, insurance companies will see it and might deem the house to be too great a risk to cover.  Since lenders require insurance before they will lend money to purchase a house, this can prevent the closing - unless you’re willing to pay cash!  Even if you find a way around this hurdle, you may want to reconsider buying this particular house since owning an uninsurable home is a major risk.

The Seller Backs Out

Sellers decide to back out of purchase agreements all the time.  It can happen because the seller receives a better offer, because they don’t want to make certain necessary repairs or modifications, or because they decide that they just don’t want to move.  If this happens, you may be able to recover damages from the seller.  At this point, it may be necessary to get a real estate attorney involved (if you haven’t already.)

Of course, it’s also possible that you decide that you don’t want the house.  If none of the contingencies that would allow you to walk away from the deal has arisen (or if you have waived your right to walk away), you will lose the earnest money that you put down if you back out of the deal, so be sure that you absolutely don’t want the house before canceling the sale.

Next Steps
Contact a qualified real estate attorney to help
guide you through the home buying process.
(e.g., Chicago, IL or 60611)

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