Home Buying in Riverside>Question Details

Katrina Downs, Home Buyer in Los Angeles, CA

How can a builder default you when they haven't received a loan approval? An what does that mean as a buyer?

Asked by Katrina Downs, Los Angeles, CA Sun Jan 27, 2013

My mom and step dad is buying a brand new home that had all ready been built but the builder has not got a loan approval from my lender! We were suppose to close jan 22 then pushed it to the 29th the builder has emailed me saying they still haven't received the loan approval from my lender an I will be defaulted? What does that mean? An what is going to happen to my credit an the money all ready in escrow ( down payment for lot, also upgrades) I have not signed any final paperwork!! (Loan hasn't been sent over to builder because of CHDAP program an credit score isn't at 640 but have done everything to get it up)

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Brad Yzermans’ answer
Katrina,

Using the term default seems odd to refer to you not meeting your closing date. I think the only money at stake here is your earnest money deposit, but since you don't have a real estate agent representing you, you may now want to hire an expensive real estate attorney to step in.

Sounds like your parents are buying you a home to live in and claiming it as their primary residence when they won't be living in it? If true, your parents are committing loan fraud and all of you could be subject to federal prosecution.

The fact that the loan is not approved yet is a sign there are problems with you your parents loan....like maybe the lender is sensing occupancy fraud? Or it could be a 50 other things causing the delay.

You've been in contract since July of 2012? And you lender sent over a fake loan commitment to the builder? Who is your lender?

And to make it worse, the CHDAP program has been suspended as of Jan. 25th. Did your lender tell you? They probably don't even know. http://www.calhfa.ca.gov/homeownership/bulletins/2013/2013-01.pdf

Once you receive actual loan approval and get all conditions signed off, your file is then sent to CHDAP for review. It will sit on some paper pushers desk for 10-14 days until the approve it....maybe longer with the CHDAP suspension.

Between waiting to get loan approval, then waiting for CHDAP to get un-suspended, then get CHDAP approval, you are still another 30 days from closing escrow.

The builder can probably close escrow with another buyer and possibly even sell it at a higher price now.

One alternative to using the CHDAP down payment assistance program is the CHF Platinum grant or the CHF Access assistance program. All three are similar tot he CHDAP but cost way more and have a higher payment.

You can compare the CHDAP, Platinum and ACCESS programs in the web reference link below......I hope that helps because I haven't heard of one lender yet who will take the time to explain in detail that the ACCESS and Platinum are your worst options for down payment assistance.
1 vote Thank Flag Link Sun Jan 27, 2013
Katrina, you are in jeapordy of loosing your deposit. Nothing will happen to your credit since there has not been any credit established at this point. However your deposit is, if you will, putting your money where your mouth is as. In other words, it tells the Seller that you are a serious Buyer and will do everything and anything to close this transaction on time barring some provisions that may allow you to cancel this transaction. Once a purchase offer is approved, it is customary to have a full lender's approval within 17 days. If for whatever reason you are not able to get approved within those 17 days, then you may have the ability to exit the transaction with little to no consequence. However, if those 17 days come and go and you did not communicate a problem with the Seller then the transaction stands. You may lose your deposit and in some cases, some Sellers may feel that there are other damages and may exercise to commence legal action against you.

Here is my recommendation:
1. Speak to your lender. Find out what is going on. Ask why they have not communicated any problems to you?
2. Upon speaking with your lender, you may need to speak to your Realtor if you have one or communicate to the builder what your intentions are.
3. If you are having issues with communication with your lender, there may be a problem with the lender as a whole. Seek a second opinion, but do not waste any time.

Feel free to contact me at 951-210-2101 for any additional questions. Also feel free to look up my website at http://www.impacmortgage.com/edeleon and or my facebook page at http://www.facebook.com/LoansByEddie

Eddie W. de Leon
951-210-2101
NMLS #238369
0 votes Thank Flag Link Thu Jan 31, 2013
The word "default" has more than one use. You can default on a loan and get your credit dinged. You can default on a contract and take the consequences that are spelled out in the contract. It sounds like this is what they are saying. You failed/defaulted in doing what the contract said you (or your lender) should do by the time in the contract.

In times like this, communication is most important. You, the lender and the builder should be communicating. If your lender thinks he can get the loan, the builder should be asked for an extension of time in writing. Ask the lender about the implications to your credit. That should be his specialty and he/she should be able to explain it to you. If the lender misled you and the builder wants to charge for an extension, ask the lender to "participate" in paying the charge.

If your lender sent a fake approval lender to the builder, he is being dishonest (the definition of fraud). If he fails to get the real approval, this "shortcut" to buy time could cost you. Builders wait until loan approval to lay flooring because flooring is an option the buyer chooses. Not all buyers have the same taste and they may have to take a loss to sell the home to someone else.

You need to read your contract and/or hire an attorney to do it for you. Everything should be spelled out there. If you are buying the home and have signed a contract stating that it is going to be YOUR primary residence and you do not intend to live there, you can be arrested for fraud. Fraud means lying in order to get something. It's a crime.

Good luck.
0 votes Thank Flag Link Tue Jan 29, 2013
Sounds like your lender absolutely blows. I see this more & more these days, lenders saying "you can qualify later, let's just get you started now and figure it all out before closing" because they don't want to be the person giving you sound advice by telling you to wait, as waiting may make them "lose the deal". Sorry you were referred to them, and yes it sounds like not everything is adding up, because there is no guarantee that credit can continued to be cleaned up by the time you need to close. This spells disaster all over it, plus with a fraudulent approval letter that just screams they are lacking integrity - they are pushing you & the builder to continue to move forward knowing that the loan will have great difficulty getting approved, if it can get approved at all. I'm sure you know this, but the truth is ALWAYS the best policy.

Like Brad says, at this point I doubt you would lose out on anything more than your earnest money deposit. Further, your credit wouldn't be damaged if you don't get approved for the loan - it's a myth that if you don't get approved for a loan then it's reported to the credit bureaus.

If it was me, and I no longer cared if I bought this home anymore, then personally I would not get a lawyer as they can cost upwards of $100-200/hr. I would just talk directly with the builder and ask them if 1) they would allow me more time to close/extend the contract, and if so, would there be any financial penalties for not closing by the initial agreed upon closing date, and 2) if I were to cancel the transaction what money would I forfeit and what portion could I get back, if any.

You can report this lender via http://nmlsconsumeraccess.org/ (look up their company name, the loan officer name, and where it says "State Licenses/Registrations", under "Consumer Complaint" there should be a hyperlink which says "Submit to Regulator" and it'll bring you to the website of that licensing authorities complaint page.

Shane Milne | Lending in all 50 states | NMLS #81195
0 votes Thank Flag Link Sun Jan 27, 2013
Crazy stuff Katrina, so sorry to hear you trusted this lender with your loan approval.

Crazy how lenders actually provide pre-approvals for borrowers who don't actually qualify.....in this case it was actually intentional! But it's not the first time, nor will it be the last. No one qualifies for CHDAP under 640 score.

You should sue that lender for gross negligence.
0 votes Thank Flag Link Sun Jan 27, 2013
Here is what I'm told by the lender why he hasn't sent over the loan approval! The other person on the loan is not at a score of 640 to get the CHdap program! As she is in collections for minor things 25 here 60 there ect my step dad has paid all these off for her! The lender informed us paying them off will make her score go up! After we paid them he says I need a pay an delete letter! Okay we did that then last minute he says she has other debits that aren't paid an we need pay an delete letter as well the problem is with one collection company is not in state an have to wait 3-5 business days which we are suppose to close jan 29 so we aren't going to make the dead line an out closing date Is up in the air the reason why the lender hasn't sent over the approval letter because of the CHDAP program we are trying to get!! So he made a photo shopped approval to the builder with conditions!! As he says to buy us time until we get the letters from collections an the builder can now release the floors for the home and won't default us now I'm on defense an feel there is something wrong an things don't add up an I don't want to sign anything until I get a lawyer!! I really came to the conclusion I'm not doing this anymore!! Do I still need a lawyer even thou I'm not going through the deal!!!
0 votes Thank Flag Link Sun Jan 27, 2013
I'm signing off on the loan with one other person my mom step dad an brother will be living in the home me an the other person on the loan will not be living in the home!! My parents are an have paid for everything I'm just signing for them!!
0 votes Thank Flag Link Sun Jan 27, 2013
If what you are saying is that the builder is terminating your contract because you haven't gotten loan approval, that is a bit odd. Generally speaking, with new construction there is a clause in the contract that has a per diem penalty if you go past the scheduled close date, not cancel the contract. You would have to refer to your purchase contract to see what the process is for builder terminating and getting your deposit back.
0 votes Thank Flag Link Sun Jan 27, 2013
Yea we are over our closing date but its not my fault why we went over our closing date it's the lender that didn't send over the loan approval letter!! I don't care if they keep the money I just don't want anything to damage my credit
0 votes Thank Flag Link Sun Jan 27, 2013
How much do you think a lawyer will cost me? Do have a realtor she just showed us the development an I haven't seen or talked to her since July 2012 the only time she did call is to see what was going on with her commission! At this point I want to back out of the deal! I haven't signed any final paperwork! Also got a text message from lender saying he sent over a photoshopped Loan approval to the builder (it's fake)
0 votes Thank Flag Link Sun Jan 27, 2013
If the date for you providing loan committment has expired withiout you getting another signed extension, itis not the builder who has defaulted but YOU. The builder can declare youin default for breaking your contract. They may be able to voide teh sale but keep your deposit. If you do not have a buyers agent, you may need to see an attorney. You should also call your loan officer to see what is the hold up and let them know you are in default. if you can find out what teh hold up is and how log they need for committment, you may want to writ an extension with a letter from your loan officer as to why you are late and how much mor etime they need.
0 votes Thank Flag Link Sun Jan 27, 2013
I am guessing that you don't have a Realtor helping you because they would be able to answer this question. I guess you have gone directly to the builder and that can sometimes be a problem, as you are now seeing. You should start thinking about a lawyer to check over your contract with the builder, ofter builders use a contract designed to protect them and not you, a Realtor would have helped prevent that.

Your terms are a bit confusing, you are the ones getting a loan approval, not the builder. What is your lender telling you? You need to be in constant contact with the lender to get the loan approved. The builder is saying that you will default (break the rules in the contract) if you can't close the loan by the date in the contract. These dates are often somewhat flexible, your lawyer can advise more on that when they read the contract. Most contracts say that if you can't get a loan then you get you deposit back, but a builders contract could have omitted that since they write them favoring them and not you. See the lawyer for advice.
0 votes Thank Flag Link Sun Jan 27, 2013
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