Getting a demand from a lender

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I have an all-cash deal in escrow right now that’s being held up by escrow’s inability to get a demand from the existing lender. Since it’s irritating me, I thought I’d share the experience, so that you’re not surprised if/when it happens to you.

First: What’s a demand? When a seller sells a property that has a mortgage on it, the loan needs to get paid off through escrow from the funds the buyer brings in (either cash or from a new purchase loan). In order for the escrow officer to pay off the loan, s/he needs an exact accounting from the lender of what is still owed on the property. This exact accounting is called a “demand”, since it is what the lender demands from the borrower in order to satisfy its claim on the property.

So, why would a lender delay in getting its demand into escrow? After all, almost every player in the real estate game wants to get paid as quickly as possible.

To understand the motivation, consider that most loans made 4-5 years ago have much higher interest rates than today’s loans. If you borrowed in 2006 and haven’t re-financed, you’re probably paying north of 6%. A new loan today costs you 3.5-4%.

Now put yourself in the lender’s shoes: You have money on the street at 6% and the borrower is trying to pay you off. You know that you’re going to recycle the money back onto the street and only get 3.5%. How excited are you to make that trade? The answer is: Not very.

Fortunately, there are regulations that require the lender provide the demand to escrow in a reasonable period of time. However, that period doesn’t seem so reasonable when you represent an all-cash buyer who is ready, willing and able to close and just needs the lender to get its act together.

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