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Suyinamaya, Home Buyer in

I'm having an issue similar to what was described here in which I lost the oportunity to walk away from the contract due to removal of

Asked by Suyinamaya, Tue Aug 7, 2012

contingencies. I'm purchasing my house through FHA and during the process or removing contingencies the lender informed us (Realtor and me) that we were able to remove all the contingencies since from his point of view the loan was approved. After removing contingencies I figured out that the lender didn't check that the house wasn't approved for FHA and lender started the process for getting the house approved without informing about the issue. After noticing an unfair behavior from the seller I wanted to walk away from the deal using my loan contingency since I thought was in place since the loan was not able to go through at the first time. Looks like loan contingency was removed in writing wrongly and seller's realtor told us that we were not able to do that without losing our deposit so I chose to stay. The FHA process got delayed and now the seller is in trouble because he's paying two mortgages waiting for my FHA approval get through. Seller want us to move in earlier otherwise he will cancel

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Suyinamaya’s answer
My agent was advised by the lender that we should be able to remove all contingencies telling us that loan was approved but looked like this lender never checked status of this condo FHA's approval.

We didn't know that this condo was not approved for FHAs loans and we ended figured out that after all contingencies were removed. I felt like I was in a trap!!.

After a few months waiting and battling to get the condo FHA approved the seller became desperate and sent us "notice to perform" and the listing agent threaten us saying that the only option on getting this deal up is if we accept renting them the condo or they will cancel the contract. just like that.

I guess the sellers have right to do what they want after contingencies have been removed but I believe that was not our fault that this condo was not FHA approved after all.

Our lender has a lot of responsibility on putting our earnest money on jeopardy.
0 votes Thank Flag Link Fri Aug 10, 2012
Suyinamaya:

Based on our answers below, can you provide some clarification for us?
0 votes Thank Flag Link Thu Aug 9, 2012
@ Ivan
It does not make sense to me, either.
0 votes Thank Flag Link Tue Aug 7, 2012
Very good answers below! I just wonder why the lender didn't offer a 5% down with lender or borrower paid mortgage insurance instead of getting the project FHA approved. I hope this works out for you!

Regards,

Ivan Diaz
Home Mortgage Consultant
ivan@mortgagesolutionsconsulting.com
415-271-7740 direct/cell
0 votes Thank Flag Link Tue Aug 7, 2012
The only properties that require FHA approval are condos.
SFR and townhouse not distinguished as condos are automatically FHA approved.
The FHA case number and thus the FHA appraisal could not have been issued if the property was not FHA approved (must be ascertained before the appraisal even occurs).
Sounds like there are some missing pieces here...

Also, selling agent should always check to make certain a property is FHA approved or not. The agent may say this is not their responsibility, but if an agent advises his client to accept an FHA contract, they would be prudent to verify the project is FHA approved.

As I said, sounds like some missing pieces here...
0 votes Thank Flag Link Tue Aug 7, 2012
A lot of missing pieces, Lender dropping the ball and now the seller extorting me saying that there are 2 options on keeping this deal together, renting the home to them while waiting for FHA to get approved or they will cancel the deal and of course going after my deposit, that doesn't look in good faith.
Flag Tue Aug 7, 2012
Looks like there are a few issues here – let’s start from the back:

You state: “Seller want us to move in earlier”
Answer: If you move in before escrow is closed, this could potentially make things worse. It sounds like the seller is short of cash and wants you to start making some sort of rent payment until your loan is finally approved and escrow can close. You have to ask yourself questions such as, “What if the property never gets approved and escrow does not close?” Then you stand the chance of losing your deposit AND your living accommodations. We typically advise buyers to never move in until escrow has actually closed – there is too much liability for all parties concerned.

You state: “After removing contingencies I figured out that the lender didn't check that the house wasn't approved for FHA and lender started the process for getting the house approved without informing about the issue.”
Answer: It sounds to me like the property is a townhouse or condo and that the development is not FHA approved – normally a single family home is automatically FHA approved unless there are some condition issues. If your lender is trying to get a complex FHA approved, this could take a long time. If your lender actually failed to check FHA’s approved complex list prior to instructing you to remove contingencies, then you and your Realtor should be examining ways to put the financial responsibility on the lender. You may need to get a real estate attorney involved.

You state: “After noticing an unfair behavior from the seller I wanted to walk away from the deal using my loan contingency since I thought was in place since the loan was not able to go through at the first time.”
Answer: Regardless of the behavior of the seller, we have to go back to the contract for clarification. At the end of the day, you are in legally binding contract. If all your contingencies have been removed in writing as per the contract and you either cannot close on time or want out for any reason, then you are at risk of losing your deposit. Even if the lender told you to proceed and you, in good faith, removed your contingencies in writing as per the contract, then YOU are still legally responsibility for the terms of the contract. It might not seem right or fair, but it can be very real.

You state: “otherwise he will cancel”
Answer: If you are outside the contract deadlines and you do not have an agreed upon extension in writing signed by all parties, then the seller has a right to issue you a Notice To Perform as per the contract. You need to either close escrow OR agree on an extension OR stand the chance of losing your deposit when the seller cancels the contract due to your inability to close on time. Many sellers do not want to do this because it places them in the awkward position of putting their home back on the market. In this case, the seller would at least have your deposit to help cover his double payments.

As a buyer, you also need to consider that if you fail to close this escrow, you may have a difficult time getting back into escrow again – inventory is VERY short right now and, since you are using an FHA loan, you more than likely do not have a lot of available cash. If you lose your deposit, you may lose out on any chance to buy in the current market. With this in mind, in my opinion, you should work hard to come an amicable solution for all parties concerned and try to get escrow closed.

As suggested above, you may need to get a real estate attorney involved in this transaction.
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0 votes Thank Flag Link Tue Aug 7, 2012
I don't want to get out of the contract. The issue right now is that sellers are short of cash and they want to compensate themself some how with me in the house renting, of course that rent doubles the one I'm paying in my current apartment so at this point doesn't make sense to me, I'm still in my lease and I can sit and wait until the FHA gets approved. I feel a little bit extorted since if I don't rent how they want they will cancel and I will lose my deposit unilateraly. That's basically my concern, I can hold until the FHA gets approved now the seller seems like cannot. Doesn't looks fair.
Flag Tue Aug 7, 2012
Do you still want to terminate the deal? If so, someone on your end should review all the docs and details to see if you have a plausible reason to terminate and get that process moving.
0 votes Thank Flag Link Tue Aug 7, 2012
Also they told me yesterday that if I don't rent them the townhome they will cancel and probably go and get my deposit. in Good faith I'm stay put until the FHA gets approved, if the seller is running out of money because they bought another house and they are doing renovation I don't think is my concern at all. As a matter of fact we are doing our best to get the townhome approved.
Flag Tue Aug 7, 2012
I thought about getting out of the contract using the contingency but now that I cannot do it I prefer to stay put. The problem is that I feel extorted since seller is offering me to move in ealier renting the townhome of course at market rate that is twice my current apartment rental knowing that I'm still in a lease. I can sit and wait but looks like the seller not.
Flag Tue Aug 7, 2012
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