How to Renovate a Townhouse in Brooklyn Volume 1 Edition 5

Nowadays, newscasts, blogs and web stories about prospective homebuyers encountering last minute resistance from the bank where they have applied for a home loan are downright common. Prior to going into contract on a 112-year old townhouse in Brooklyn, Hubbie and I had become nearly immune to the dubious plights of homeowners trying to refinance underwater mortgages, or buyers who been had scrutinized by the banks to the point of invasiveness. We had embarked on our loan process with confidence that we had made the right financial moves and could document each and every one of them. In addition, we had secure employment and were turning around the paperwork for the renovation piece of the loan so quickly that the selling agent referred to it as “record time.”

Enter, the loan processor.

Shortly after going into contract on a 112-year old townhouse in Brooklyn, Hubbie and I were introduced to a woman who would become both our advocate and our nemesis at the bank – the Loan Processor. Let’s call her Ruth. Where the Loan Originator assists the buyer with the application and explains the available mortgage products, rates, etc. the Loan Processor ensures the borrower’s file is complete and issues the bank’s letter of commitment. The commitment letter is key – it is the bank’s promise to loan you the money that you need, provided your fulfill certain conditions. The commitment is also binding on the buyer – if the buyers for do not get approved for the loan due to something he/she has done related to the terms of the commitment, the buyer could lose the down payment.

The first email we received from Ruth contained the following list of conditions for us to clear our loan:

Hazard Insurance Binder For Purchase Property Including Windstorm Coverage

Credit Inquiry Letter For Credit Inquiries dated 1/9, 3/6 and 5/2
Current Asset Statements From Checking, Savings, Retirement and Brokerage Accounts
All W2's for the last 2 years
Tax Form
Fully Executed Real Estate Certification as part of FHA Amendatory Clause – Signed by Buyers, Sellers and Real Estate Agent
Completed Appraisal of New Property
HUD Work Write Up Report signed by the Contractor, Borrowers and HUD Consultant
Earnest Deposit Money Verification Documents
Large Deposit Verification Documents
Government Issued Photo ID – Not Expired
Proof of Taxes, Insurance and Condominium Common Charge Fees for Current Residence
Contractor Validation Form containing General Contractor’s License Number, W9, References and Copy of Worker’s Compensation Insurance Certificate
Written Verification of Employment, at least twice

Meanwhile, we still needed to hire an architect.

After getting the initial scope of work back from the General Contractor, we had determined that an architect would be required for our project. We had a candidate who had offered us a fair price, but he had also warned us that the price would go up if there were no Department of Building drawings on file for the house as this meant he would have to draw the whole house over from scratch. So, in the midst of collecting copious paperwork for the bank, Hubbie and I also had to make the rounds to NYC’s municipal offices to determine if there were any plans on record we could use. If not, we needed to find anything and everything that did exist that could serve as a substitute.

Our first stop was to the Department of Buildings at 210 Joralemon Street. This impressive structure’s front columns echo the ones in the living room at the old house, and the number of languages being spoken in the building at any given time is vast and varied – from Russian to Chinese to Farsi On the 8^th floor, an irritable yet helpful clerk did some digging before he advised us that whatever plans ever existed had simply “walked out of this building years ago.”

Hubbie also took a trip to the Municipal archives on Court Street where he found negatives of old insurance photographs picturing the facades of all of the houses back to the 1940’s. He even hit up the Brooklyn Topographical bureau and found old handwritten tax maps going back to 1899 that go block by block showing every building in the borough. On a mild summer afternoon, I took a trip down to the Landmarks Preservation Commission just to be sure we had the proper application for our architect well in advance of putting him on a retainer.

The research didn’t produce as much information as we had hoped, and we would still have to pay the architect to re-draw the entire house, but the trips did provide a welcome distraction to the labored process of sending paperwork back and forth to Ruth. Nontheless, we managed to track down every item that had been required of us as per the bank’s commitment. Even the GC’s references, licenses and work write-up had been turned around quickly and had all passed the bank’s scrutiny. It was a week before we were supposed to close and all we needed now was for our loan to “clear” so that we could set a closing date.

Which is why we never anticipated that 42 days into our escrow, the bank would present us with a brand new condition.

It was the very day that we had hoped to hear from the bank that our loan had cleared. Instead, we got an email from Ruth stating that the bank had a new condition. This condition would require us to get approvals of our plans from Landmarks before closing. Hubbie and I rarely have an evening off together, so I am grateful that we were together when we received this devastating news.

The primary problem with this new condition is that Landmarks Preservation will not give approvals to anyone who is not the owner of a house –as the prospective buyers this puts us squarely in a Catch-22. The second problem is that we had no drawn plans as of yet, as we were waiting to clear our loan before retaining an architect. We had now lost 6 entire weeks. The third and most vexing problem with the new condition is the fact that the extended Federal loan limit on our loan is set to expire on Sept 30^th of this year. If we do not close before that day, we will not be able to afford this house.

All of this we immediately pointed out to the bank. The following day, the bank re-worded the condition to require “confirmation” that our plans did not violate Landmark guidelines. This restated condition was more perplexing and dubious. “Confirmation” is not something that Landmark provides. I said to Hubbie, “That’s like asking someone to get ‘confirmation’ from the DMV that they are able to drive. You either get a driver’s license or you don’t.” Hubbie agreed.

Yet the bank held fast to their new condition. So, Hubbie and I went to work.

At 4:30 the next morning we sent the first email. The emails did not stop flying for three straight days. We emailed the bank processor, the loan originator, the branch manager, their bosses and their bosses’ bosses. We copied counsel for the bank and sent the loan processor a copy of the complete LPC written guidelines. We had our lawyer write to the bank’s lawyer and the bank’s lawyer wrote to the processor. We contacted our GC who wrote a letter to the bank, as did our architect who hadn’t even been paid yet. Our HUD consultant put in a good word for us, and finally, on Friday morning, we got counsel from one of the city’s office to write a letter to the bank “confirming” that our plans appeared to be consistent with LPC requirements.

It was one hell of week.

Late Friday afternoon our lawyer sent us an email with the subject “clear to close.” Shortly before, the bank’s lawyer had reached out to our lawyer with the information that the bank wanted to clear our loan by Monday with a possible closing on Thursday.

Tomorrow is Monday. Heaven only knows what’s will happen next.