Mortgages: The Seller Chooses a Lender

Some sellers are finding lenders willing to provide financing for an eventual sale even before they put their condos or co-ops on the market; they then add language to the sales contract requiring buyers at least to obtain preapproval from the seller’s preferred lender.

The advance legwork can save sellers’ wasting time on buyers who can’t find financing on their own, said Rolan Shnayder, a partner and the director of new development lending for H.O.M.E. Mortgage Bankers in Manhattan. “Never is there going to be the excuse that I went to the bank and I was a great credit risk but they wouldn’t approve the building.”

The strategy is akin to a developer’s tactic of working with a preferred lender on a new condo offering. It cropped up in resales as banks became more careful about the types of buildings they would finance.

For sellers, “it’s not enough for the purchaser to be credit-worthy,” said Neil Garfinkel, a Manhattan real estate lawyer. “You have to make sure the building is warrantable.”

A warrantable building is one eligible for backing by Fannie Mae. Under Fannie’s guidelines, a building is nonwarrantable if one entity owns more than 10 percent of the units, or fewer than 70 percent are owner occupied, Mr. Shnayder said.

Also, the maximum allowable commercial space in a building is no more than 20 percent. And the building ownership must be putting in reserve at least 10 percent of yearly maintenance. “Newer buildings have that 10 percent in the budget,” he said, “but a lot of the older ones don’t.”

Being nonwarrantable doesn’t make a building “bad,” Mr. Garfinkel said. It just means it doesn’t fit the Fannie Mae criteria. He advises sellers to determine whether their building is warrantable before listing a unit. If it is not, then sellers should ask their real estate agent or other professional to recommend other potential lenders.

With a lender in place, the seller can add language to the sales contract that requires buyers to be preapproved by that lender. The buyer can still apply for a mortgage with another lender, but if that doesn’t work, “they agree to apply to this source which we know will lend in this building,” Mr. Garfinkel said.

A fair deal for buyers? Mr. Shnayder maintains that having a lender in place that has already approved the building can save a buyer time and the frustration of dealing with management companies.

But Daniel Gershburg, a real estate lawyer who frequently represents clients buying in new buildings in Brooklyn, warns that merely being preapproved does not guarantee that your mortgage application will sail through the process.

In working with developers’ preferred lenders, for example, he has seen applications held up long enough that his clients’ rate locks expire, costing them additional fees. “Once you’re at the whim of this lender, if they don’t follow through, there’s nothing you can do,” he said.

Jason Auerbach, a divisional manager of First Choice Loan Services, also notes that a preferred lender evaluating a buyer for preapproval is not allowed to share the buyer’s personal financial information with the seller. “The mortgage banker or broker has a fiduciary responsibility to their client,” he said, “not the seller.”

Article source: http://www.nytimes.com/2013/04/28/realestate/the-seller-chooses-a-lender.html?partner=rss&emc=rss