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Can the REO seller require the buyer to get prequalified by a specific lender?

Phyllis Harb is a Realtor® with Prudential California Realty.  She may be contacted at (818) 790-7325 or by email
Phyllis Harb is a Realtor® with Prudential California Realty. She may be contacted at (818) 790-7325 or by email

Dear Phyllis,
My wife and I have been seriously searching for homes for more than six months. We got our pre-approval months ago and have made unsuccessful bids for two homes. Our real estate agent showed us a foreclosed home and we want to put a bid in, but she is telling us that the bank insists that we obtain a pre-qualification from their choice of lender. As we are already pre-approved, I can’t understand why we need to do this. We have been working with our choice of lender for months and don’t want to switch now. And our agent insists that the seller’s agent will not submit our offer to the bank without the letter from their choice of lender. Is this legal?

Dear Jerry,
I am a real estate agent and not a real estate attorney. Just as not all real estate agents are created equal, neither are mortgage lenders. The seller is not requiring that you obtain your actual loan with their lender. They typically ask that you have a telephone interview with their lender, so they may verify that you are indeed qualified to close escrow.

The bank is in the business of selling off their inventory of foreclosures. They do this without emotion, and generally have a set of guidelines, including that all buyers get pre-approved or pre-qualified by their choice of lender. This is not uncommon.

In some instances I have even seen home sellers agree to pay additional buyer closing costs only in the event that the buyer closes escrow with the seller’s choice of lender. My opinion as a real estate agent is that the seller is free to offer such incentives.

Without the pre-qualification from their choice of lender it is likely that your offer will be considered incomplete and will not be submitted to the bank for review. Unfortunately, it is  currently a very competitive market for home buyers; just take a deep breath and do what needs to be done in order for you to accomplish your goal of home ownership.