Buyers: What to Do When You Lose Your Job While In Escrow
Life doesn’t stop during escrow. As nice as it would be for a homebuyer to be able to press pause on all non-real estate matters during that 30 days, the reality is that people still travel, give birth and get married (and divorced!) during escrow -- just like any other month of their lives.
Unfortunately, it has become more common than ever to hear of a buyer actually losing their job while they are in escrow. It’s enough to make a normally sane buyer go all the way off the deep end.
The Client. Recently, a very savvy and financially mature couple I was working with was totally shocked when the bride-to-be was pink slipped when her employer, a major bank, was bought by another bank. She was quite high-level and had been repeatedly assured that her position would be essential, no matter what went down with the company. So the news of her layoff hit her like a ton of bricks, though she was given several months’ notice of her impending unemployment.
The pair -- whose deal was just five days into escrow -- called me up with a barrage of questions:
- Would they lose their deposit if they backed out of the deal?
- Would they still qualify if they moved forward?
- What about if they downsized their house hunting criteria, backed out of this deal and kept looking? How easy would it be to find something else and would they be able to get a mortgage once they did?
- What in the heck should they do now?
The Workaround. After reminding them that they were in the unusual position, due to their smart saving habits and their conservative mortgage decision-making, to be able to afford their projected monthly payment for a couple of years, even if she remained unemployed, we decided to get systematic and address these issues in turn:
- We had not removed any contingencies yet, so they had another 12 days to make a decision about whether to move forward. During that time, they could get their deposit money back.
- Many lenders check that you are still employed as late as the day prior to funding. But since my client was still going to be employed for several months, they could certainly still qualify for this loan. The real issue was whether they felt comfortable making such an obligation in the shadow of the impending decrease in income.
- With so much on the market, and their very discriminating tastes, my professional opinion was that they should expect it to take several months of further house hunting to find something else. It took them 90 days or so to find this one, and it’s a lot harder to be happy with something less expensive than what you’ve seen before! I sent them off to the mortgage broker to see how much they could qualify for taking her income totally out of the equation, then sent them a bunch of listings in that reduced price range.
The only question I could not definitively answer was the big one: what should they do? That was entirely up to them and their comfort level. Ordinarily, I would have advised them to run -- not walk -- from the deal, do not pass go, but do collect your earnest money deposit. But because they were able to cover the payments without her income, she had some good job prospects already lined up, they had a deep cushion of savings, and she still had severance pay and unemployment benefits coming to her, I didn’t feel the need to be heavy-handed in my advice. Close the deal or back out -- either decision made sense, and I would faithfully execute whatever choice they made.
The Result. They were smart folks with a history of making smart financial decisions, and I was confident they would do so in this case too. And they did. They decided to back out of that deal and wait until she got another job to find another place. Fast forward about six weeks -- she got another, better position and the house hunt is back on!
