Legal Question in Real Estate Law in California

The buyer's lender can demand whatever they want. The seller is under no obligation to comply, with the understanding, however, that the lender may then refuse to fund.

If the buyer has already removed the loan contingency, then the buyer must figure out how to get other funding. They may, however, just default on the purchase, leaving you to fight with them over the deposit which they will be obligated to release to you, but will probably claim you don't get to keep because you could have kept the deal together by complying with the lender. If you have a back-up offer, that really may not be a particularly bad thing, since you would still have a sale and would have a better than 50/50 chance of keeping the deposit. If you don't have a back-up offer you have to put the property back on the market with the stigma of having fallen out of escrow.

If the buyer has not removed the loan contingency, and the lender refuses to fund, it's up to them whether they try to find a new lender, or just walk away. With the loan contingency still in place it would mean they would be entitled to their deposit back. Again, if you have a back-up offer, this could be no problem, but if not, you're back on the market.

The bottom line is that this is a negotiation situation, based on figuring out what is in your best interests and negotiating the best possible outcome. If you want to walk away from this deal, this may be your chance. If you want to keep the deal together, you may want to compromise, maybe agree to the demand if the buyer pays a service to do it. If your broker is worth their commission, they should be able to negotiate a reasonable outcome to this.

Mr. McCormick is right. This is a negotiation. The demands are somewhat unusual, and not what one would expect from a major institutional lender. Nevertheless, a lender is under no obligation to close a loan until it commits unconditionally, which is usually not until about 30 seconds before it pushes the button to transfer the loan proceeds to escrow. In the meanwhile, it can generate all sorts of conditions and demands, maybe including some that impose upon the seller and/or seem unreasonable to the borrower. Lenders' officers can behave irrationally upon occasion. Remember, this is a negotiation. Think of everything in terms of the dollars it will cost, now and in the future, to meet or to refuse to meet each demand.