When Things Fall Apart

An article in the March 2009 issues of REALTOR Magazine (The 11th-Hour Back Out by Robert Freedman) recounts a phenomenon that many of us in the profession are dealing with: transactions that fall apart before closing. Freedman cites statistics showing a increasing gap between "pending" deals and "closed" sales. What's happening? The article points to two major issues: failure to obtain financing and the high number of short sales that are never consummated, but instead proceed to foreclosure. Locally we rarely see a loan fail to go through due to the property not appraising, but standards are tightening and I just encountered on this week. Loans more often fail due to stricter credit requirements by lenders. While this is generally a good thing for everyone, it presents a serious problem for the parties and professionals involved when the standards change between the time an offer is accepted and the expected close of escrow. Other incidents that I have seen recently and locally reflect the overall problems in the economy: the buyer loses a job, the buyers line of credit on another property is cancelled or reduced, the sale of the buyer's other property failed to close, and the buyer found another property while waiting several months for a short sale to be approved. Our office recently experienced a situation where the failure of one transaction in New York resulted in four other deals falling out as each was dependent on the other and the transactions tumbled down like dominoes in a row. The moral of the story: be very attentive to your contingency clauses and keep them in effect for as long as possible.