House #11: Financing Issues

September 17, 2009 · 3 comments

As I’ve mentioned on a number of occasions, our project manager for Lish Properties (who is also my brother) is in the process of buying The Sunglasses House. And to be more specific, his fiancee was buying the house with a loan in her own name, and both of them are to be on the title. Because he is using FHA financing, they are required to wait 90 days from my purchase date before they can purchase the property from me, but so far, the whole process has been going smoothly, and we were hoping to close in the next week or two.

The lender had already done two appraisals and the underwriter was in the process of verifying the source of the down-payment funds when he realized that the buyer’s fiancee (my project manager) worked for the company selling the house (he noticed the direct deposits of his paycheck from my company into their joint savings account). The underwriter determined that this violated their rule of an “arm’s length transaction,” and essentially told them that they wouldn’t finance the purchase!

While the underwriter can do whatever he wants, it’s unfortunate that he made this decision. First, the buyer is technically my project manager’s fiancee, who has absolutely no relationship to the company. Second, even if the buyer were my project manager, the fact that he has no ownership in the company should mean that this would be an “arms length transaction.” In fact, there are specific FHA rules that state that an employee of a home builder can purchase a house from the company assuming he has no ownership in the company. While we’re not technically a home builder, the relationship is exactly the same.

Anyway, like I said, you can’t argue with the underwriter — at least not successfully. So, my project manager and his fiancee are now scrambling to restart their financing with another lender who hopefully will interpret the rules a bit accurately and not have issue with this relationship. Unfortunately, this is turning what should have been a great week — we have four properties under contract — into a bit of a frustration for everyone involved. These guys have worked hard on getting this house customized to their liking and are ready to move in, and now poor interpretation of the financing rules is getting in the way of their moving in and enjoying what will hopefully soon be their new home.

Hopefully my next update on this new saga will have a happy ending…

3 responses to “House #11: Financing Issues”

  1. nathan says:

    Aaaarrrrggggg!!! This loan will close, soon, if it’s the last and only thing I ever do!!! Not only will it be a hassle to have to sell it to another buyer, but my fiance will beat me up every time she takes a shower that’s not in her very customized and very nice shower… 😉

  2. Steve says:

    I am surprised the underwrite caught that. Seems like an arms length transaction to me. I guess the good news is, if it gets too easy, everyone would be flipping homes again.

  3. Bilgefisher says:

    Meh, their loss on a quality borrrower over misunderstanding of the rules. Underwriters aren’t exactly the brightest of the bunch with some of the asinine things they require to see.

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