Practice Tip: Pressure to Waive Financing? What You Should Do.

Real estate professionals often ask why mortgage professionals seem reluctant to provide them with a letter confirming that their clients’ financing conditions have been met and they can waive conditions. They are reluctant for good reason.

Typical Scenario

Mortgage professionals communicate the terms of the buyers’ commitment specifically when the borrower has satisfied the lender’s conditions. This happens when the lender is prepared to disburse the funds to close the purchase transaction, but only if the borrower’s situation remains unchanged between final approval and the funding date.

Mortgage professionals should let the buyer know it is the buyers’ responsibility to maintain their income and debt levels at what they were during initial approval of the loan funding. Even then, a borrower’s situation can change without the knowledge of the mortgage broker, making previously approved financing void.

If they provide a letter waiving financing on behalf of the borrower when it hasn’t actually happened, and there’s been an unknown change or some other complication, mortgage professionals could end up on the hook.

Mortgage professionals CAN’T waive conditions

The purchase contract and related conditions are contractual matters between the buyer and seller. The mortgage commitment is between the lender and the borrower. The mortgage broker facilitates lending arrangements for the borrower, but has no legal authority to waive the buyer’s purchase contract financing conditions.

So, as much as the mortgage professional would like to help move the process along as quickly and as efficiently as possible, the responsibility to waive the financing condition lies only with the borrower.

3 thoughts on “Practice Tip: Pressure to Waive Financing? What You Should Do.

  1. You state that the responsibility to waive the financing condition lies only with the borrower. Does a real estate agent face any potential liability after they assist the buyer in waiving the financing condition upon the buyer’s instructions? If an agent follows the buyer instructions, without a letter in hand from the mortgage person that states that at that point in time the buyer has a mortgage approval, is an agent at risk?

    Your headline stated “Pressure to Waive Financing? What Should You Do”. The article however does not specify what a real estate agent SHOULD do. Can you please provide another article to answer that question.

    Also, I believe most real estate professionals understand that mortgage professionals CAN’T waive conditions. Do you have any information that would suggest otherwise?

    The reason I ask for a letter or email from the mortgage broker is to do my best to ensure the buyer has not mistaken what the mortgage person may have said. I’ve had situations over the years where a buyer client says they can go ahead and remove their financing condition because the mortgage person said they were “approved” or “everything looks okay”. When I checked further, it turned out the mortgage person had said it was approved at the bank but NOT YET at CMHC. Given the potential legal problems and costs if mistakes are made, is it not in the best interest of the buyer, the mortgage broker, and real estate professional to ensure conditions are not mistakenly waived leading to problems for all concerned?

    How do we help protect buyer consumers if we take the approach that “the responsibility to waive the financing condition lies only with the borrower?.

    Dave Schroder
    Associate at Maxwell Polaris

    • You make some good points, Dave. Consumers do expect guidance from industry professionals. Mortgage brokers can provide borrowers/buyers with a letter confirming the status of their financing, such as, “all lender and mortgage insurer conditions have been satisfied.” The borrower/buyer can then provide that letter to the real estate professional or give permission to the mortgage professional to provide it directly to the real estate professional.

      On numerous occasions recently RECA received questions from mortgage professionals being asked to provide written confirmation that financing conditions can be waived. Providing a confirmation in writing on the status of financing is different than providing confirmation to waive financing conditions. It may be splitting hairs a bit, but it is a distinction that sometimes gets lost out their, especially when trades are in jeopardy or on a tight timeline, and all parties are rightfully concerned about their own liability in such cases.

      Thank you for your comment.

  2. Some excellent points surfaced in respect to a lender or mortgage broker providing a mortgage commitment. A prudent lender or mortgage broker should certainly exercise due caution when communicating a mortgage commitment. Never use the term approval. Some impediments to funding may include, an unexpected adverse situation relative to the borrower, which may preclude funding, some unexpected property problem may surface prior to funding, perhaps the borrower may enter into obligations which will throw their ratios off-side. The list goes on. I always advise the proposed borrower(s) and realtor(s) of the forgoing and expect to act in accordance with the commitment letter

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