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Natural Disasters May Disrupt Mortgage Closings

Natural Disasters May Disrupt Mortgage Closings By Gina Ragusa
Published November 12, 2012
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When Hurricane Sandy smashed into the New York/New Jersey coastline, home buyers in mid-mortgage closing were caught off guard, some going to great lengths to hang onto properties that even surprised some lenders.

The New York Times spoke to Denise Walsh, a partner in Gigliotti & Walsh Fine Properties who said that she had to figure out how to respond to one buyer who chartered a boat to check out his property post Sandy.

“Don’t you know the buyer got a boat, rowed by the house that he’s negotiating and took photos,” she said. “He e-mailed me photos of the property and said: ‘Good news! I’m still interested. But what do we do about this?’ So now the negotiation is going to take a different turn.”

In this case, a new appraisal is in order to ensure the home did not sustain serious damage, however every scenario is different making both new home purchases and refinances a red tape nightmare for lenders.

For homes in the middle of mortgage financing post storm, nothing is cut and dry. “If you are in a FEMA-declared disaster area or emergency area, banks are requiring an inspection of the home to affirm whether there was damage done,” Jason Auerbach, a divisional manager for First Choice Loan Services, told The New York Times. “They are re-inspecting properties to make sure it’s still a functional property that can be lived in.”

Home re-inspections can range from a simple drive-by appraisal to an in-depth inspection depending upon storm location and overall impact.

“What we don’t want to have the day of the closing is that they go into the property and see evidence of flood damage,” said real estate attorney, Scott Penner. “Then they’ll want to negotiate at that time, and it creates all sorts of problems.”

Borrowers Try To Ensure Their Rate Lock In

When the storm hit, mortgage rates were at some of the lowest levels since the 1950’s. Bankrate.com’s October 31, 2012 survey had rates at 3.57% for a 30 year fixed rate loan and 2.89% for a 15 year fixed product.

Experts say that borrowers in the path of Sandy during mid-closing should talk to their lender as soon as possible to determine if they can still lock in. According to Neil Garfinkel, a New York City real estate attorney, lenders are typically willing to work with the borrower and extend the rate.

If the home is under contract for purchase and not refinance, borrowers may have issues closing on their home in storm impacted areas, even if their home had not sustained any damage. Garfinkel tells Fox Business News that, “A buyer who is under contract to buy a house that has been damaged by the hurricane can likely walk from the deal if the home can't be repaired by the closing date. It depends on how the contract was written and how badly the property was damaged.”

Lender Doug Harris offers tips every homeowner and potential homeowner should consider when trying to finance their home:

  • Anticipate closing delay. If the storm hits before you can lock-in at the desired rate and the rate lock expires, ask your lender to honor the original, agreed upon rate--many lenders will help.
  • Be prepared for another inspection. At the very least an exterior inspection may be required for a property located in any area declared a disaster by FEMA.
  • Before you buy, ask for another inspection if your home is located near or within the storm path. Even if your potential home isn’t in the specified FEMA disaster area, consider having it re-inspected to insure no hidden damages are lurking that could cause problems for you post closing.
  • Decide who is responsible for paying for repairs before purchasing a home. If you are about to buy a new home that has been damaged by the storm, come to an agreement about who (buyer or seller) is responsible for making the repairs.
  • For minor damage, ask the seller if they could provide you with a credit for repairs or set up an escrow account with the necessary amount dedicated for repairs.

Credit Unions Take an Extra Step to Ease Loan Pain

In addition to working with borrowers to ensure mortgage closings go off without a hitch; credit unions are going the extra mile to relieve any additional burden for its members.

For homes that sustained damage from the hurricane, Jersey Shore Federal Credit Union ($117 million, Northfield, NJ) has created a low rate loan to help members repair homes from flood damage, remove fallen trees on the property or use it for any recovery reason.

NEFCU ($1.9 billion, Westbury, NY) is also offering a hurricane relief loan, a 1% discount on auto loans, a 90 day auto loan payment deferral and a 0% rate on credit card for home improvement purchases.

Other credit unions offering loan assistance include:

As credit unions band together to aid their members, Mother Nature threw another curve ball at the region--a nor’easter last week.

The New Jersey Credit Union League issued a press release following the storm. "Just when we were starting to see many more New Jerseyans have their power turned back on, we unfortunately were hit with a snowfall that is delaying power restoration and has taken many areas backwards because of downed trees and lines from the snow," said NJCUL President/CEO Paul Gentile. "I want to thank credit unions, leagues and system players from around the country who have stepped up and donated to the National Credit Union Foundation's CU Aid. The funds are needed and appreciated. We will never forget the outpouring of support."

Not sure how to proceed with your loan closing or if you need a home repair loan? Contact your credit union for immediate assistance.

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