Keith Price was set to close escrow for a client purchasing a La Habra duplex when he got word there was a hitch in the deal.
"The loan is on hold," his escrow officer said.
For real estate agents like Price, a hitch like this can mean the difference between closing a deal or losing it — and between earning a commission or wasting his time.
But the reason for the hitch nearly floored him.
"It's a FEMA issue," the escrow officer said.
Turns out that the newly remodeled, 1,600-square-foot property needed an extra inspection to make sure it hadn't been damaged by the Canyon 2 wildfire that blazed through parts of Orange and Anaheim hills 15 miles to the south.
The deal has been on hold for 10 days and counting, and Price is praying the seller doesn't back out.
"It's been very emotional for my clients," said Price, an agent with Keller Williams Realty. "They don't know when they're going to be able to move."
The Canyon 2 fire has been contained for more than a week. The last embers have been extinguished. But aftereffects from the 9,200-acre conflagration still are rippling throughout Orange County.
Because President Trump declared Orange County a disaster area, mortgages for properties all over Orange County — from La Habra to Dana Point — need a damage inspection before lenders can fund loans. That's holding up escrows, refinances and reverse mortgages for a host of borrowers otherwise unaffected by the Canyon 2 disaster.
The bureaucratic designation — "presidentially declared major disaster area" — triggers an automatic response by the Federal Housing Administration requiring that all homes in that geographic area be re-inspected before loans get funded. Other lenders acting on their own, and some insurance companies, also require some form of inspection or certification that a home is damage-free before issuing a new loan or insurance policy. The U.S. Department of Veterans Affairs didn't respond to questions about how VA loans are affected, but some agents said the agency has a similar policy.
The same thing is happening to borrowers in seven fire-ravaged counties north of San Francisco, as well as borrowers in disaster areas in Texas, Florida and Puerto Rico.
No one knows the total number of borrowers affected, although FHA estimates it insures about 500 loans a month in Orange County. Some agents suspect millions of dollars in loans have been affected in the county.
The presidential declaration impacts all of Orange County even though the disaster affected less than 2% of the county's total acreage and a fraction of a percent of Orange County's total housing stock.
But the Federal Emergency Management Agency can't issue emergency declarations for jurisdictions smaller than counties, said Frank Mansell, a FEMA regional spokesman in Oakland.
"We do not designate individual cities," Mansell said.
Making matters worse, re-inspections for FHA loans initially were put on hold until Nov. 14 — the date FHA believed to be the "incident end date." FHA issued a special waiver Tuesday allowing the re-inspections to go forward — but didn't drop the re-inspection requirement.
Some industry insiders said such re-inspections are routine in natural disasters.
"Would you loan money not knowing if a house was burned to the ground? Hell no," said escrow officer Julie Ricottone of Stewart Title in Newport Beach. "It's a common sense thing."
Ricottone, who handles escrows throughout California, said the disaster declaration impacted 25 to 30 of her transactions, 15 to 20 of them in Orange County.
Lenders, she said, need to make sure the collateral is still standing. Out-of-state lenders often have no idea how close a home in, say, Seal Beach or San Clemente might be to the disaster zone in Anaheim Hills.
Still, the re-inspections were news even to some professionals for whom disasters are anything but routine.
"We've lived in Orange County for decades. We've had fires before. This time, they declared it a disaster zone, so the rules changed," said Logan Mohtashami of AMC Lending Group in Laguna Hills. "This day and age, everybody has to cross their t's and dot their i's. That's the world we live in. Common sense gets thrown out the door."
Delays caused by the additional inspections raise the risk that borrowers could lose their mortgage-rate guarantees (or "rate locks") or could lose the deal altogether, local agents and escrow officers say.
Such delays also have a domino effect on deals that are contingent on the buyers selling their current home.
Brandon Haefele, CEO of Sacramento-based Catalyst Mortgage and a board member of the California Mortgage Bankers Association, heard of one Bay Area transaction that got killed because the buyers couldn't close escrow on their home in Napa County.
"In California, we are seeing a lot of sales, north to south, that are contingent on (the buyers) selling their home," Haefele said. "It can really have an impact, not just in one county, but in surrounding counties or out of state where people are moving."
Mohtashami said he had a one-day delay in funding a jumbo loan for the purchase of a Dana Point home. The re-inspection was dropped after the lender decided not to require it for homes more than five miles from the Canyon 2 fire, he said.
Others haven't been so lucky.
Orange real estate broker Al Ricci had four deals that were delayed because lenders required appraisers to re-inspect properties.
"FEMA red flagged all Orange County. That's where it started from," Ricci said.
One lender wanted pictures inside a house near Old Towne Orange, seven miles west of the fire, and up and down the street showing there hadn't been any damage.
One-day delays were typical for four properties handled by Melissa DeVito, manager of EBR Escrow Corp. in Orange.
In two cases, the lender accepted email or verbal confirmation the homes were nowhere near the fire zone. One lender approved a loan on Oct. 13, then tried to recall it, DeVito said. But it was too late. The transaction already had been filed with the county Clerk-Recorder's Office.
Farmers Insurance issued a five-day freeze on new insurance policies for homes in escrow, she added, but lifted the freeze in time for the scheduled closing.
"It's just frustrating. It was such a blanket thing," DeVito said of the delays. It would have been better, she said, "if they had done it by ZIP codes because none of the ZIP codes (for my escrows) were even close to the fires."
Appraisals, which typically cost $375 to $550, are routine parts of any new mortgage. Who pays for the re-inspections, costing from $125 to $175 apiece, depended on the situation and on the lender.
Lenders are picking up the tab in most cases, local professionals said. But in a few cases, borrowers had to pay.
The lending freeze has been more than an inconvenience for Price's clients, first-time home buyers planning to share the two-unit property with their son and pregnant daughter-in-law so their first grandchild will live next door.
Price said he was on the phone for four days trying to get answers from FEMA and the FHA about the delay. Since the property is two cities away from the fire zone, could FEMA issue a clearance or a waiver, he asked an official answering the agency's 800 number.
"We don't give clearances," the official told Price.
Other agents soon began calling him saying their deals wouldn't close either. One agent in his office threatened to kill a deal if the buyer's lender didn't "perform" by Monday, he said.
Everyone expressed the same frustration. No one in the bureaucracy — FHA, FEMA, lenders, mortgage brokers and escrow officers — had answers about why properties so removed from the fire needed a damage inspection.
"How come no one's connecting the dots?" Price said. "It just amazes me."
