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Seller & Lender Credits; Can’t Exceed Closing Costs; Repairs; Rules

Seller & Lender Credits; Can't Exceed Closing Costs; Repairs; RulesWe thought it was time to repeat a few basic, but very important, guidelines in regard to seller and lender credits. We’ve had numerous delays in recent weeks b/c of mistakes.

1. If a credit is specified to be for a repair either in the contract or addendum, the repairs will have to be completed prior to close of escrow. We will need to show proof they are complete, with either an appraiser’s or licensed contractor’s certification.

2. Credits for closing costs cannot exceed actual closing costs. Be sure to check with your lender to get an estimate for total closing costs. If there are significant transfer taxes and an impound account, the total closing cost figure can be substantial, creating much leeway for credits.

3. Credits can be for non-recurring and reoccurring closing costs. There is no need to specify which. Credits can simply be for “closing costs.”

4. Closing cost credits should be on a separate addendum, and not on a “Request for Repairs” addendum. It is well known that Realtors substitute “closing cost” credits for “repair” credits, to avoid disclosing repair issues. But, this should not be made too obvious by putting closing cost credits on a “Request for Repairs” addendum (even if the Request for Repairs addendum does not specifically note any repairs).

5. Make sure there are no large lender-credits in place already. We recently had a transaction grind to a halt b/c the selling agent negotiated a seller-credit for closing costs without knowing that we had already given the buyer a large lender-credit. As a result, the total credits exceeded closing costs, and we had to restructure.

Jay Voorhees
Founder/Broker | JVM Lending
(855) 855-4491 | DRE# 01524255, NMLS# 310167