Getting out of a mortgage commitment

Asked by Sc, Brooklyn, NY Thu Aug 21, 2008

Hello, we are currently in contract for a house (1st time home buyer here). We have a mortgage commitment with the rate locked in (we even bought down a the rate for a point). Right now though, the two family house we were going to buy suddenly came back as a one family house (C/O, which said it is an one family house, was misfiled by the city, hence we relied on tax records to see if it was a two family house or not). Since this is not what we were walking into and an attorney friend told us we have a strong case to get out of the deal because of mutual misunderstanding, we were wondering if there is any penalty to not borrow the money from the bank if the closing falls through. Basically, is there a cancellation penalty with the bank once they offer a firm commitment?

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Dp2, , Virginia
Wed Oct 8, 2008
Did your purchase agreement contain any contingency clauses (for financing, inspection, appraisal, etc)?

Did you sign a purchase agreement stating that you'd purchase the property AS-IS?

Re-examine the appraisal. Check the properties included for sales comps. As Bob stated earlier, if the comparable properties aren't single-family homes, then the appraiser will need to readjust the report to use single-family homes instead for the comps. Again, that will most likely lower the value of the appraisal, which will probably lower the amount of financing you'll be able to get, and which will hopefully kill the deal (due to inadequate financing [assuming you have that contingency]).

Does either your attorney or attorney friend specialize in real-estate or contract law? If not, then you definitely should seek another opinion.
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Sc, Home Buyer, Brooklyn, NY
Mon Aug 25, 2008
Thank you for your answers. Our lawyer said we have a weak case of getting out of the contract however because it was the agent who mislead us and not the seller (agent is not a party to the contract as she said). We do have an ad that said it is a legal two family when it is in fact one. However the contract did not specify whether it is a two family or one family. Do I have a good case to get my deposit back if we decide to cancel? The bank has appraised the property and it went for more than what we are paying but we are still looking for a two family, not one.
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Bob McClure, Other Pro, Walled Lake, MI
Sat Aug 23, 2008
good evening....the only charge could be for the appraisal...unless the listing agent mis-represented the type of property it is on the mls ticket..and had multiple on it rather than sfr, even if it was done innocently..(you may have pd upwards of $500 or so for a multi-unit appraisal, rather then the usual ($250--$350 for a sfr appsl.)..first thing to look what did the mls ticket say?....1 or 2 family ?...the listing agent could have dropped the ball.....yes, you do have recourse... to get your emd penalty for not closing w/ the mortg co!...none! this an fha deal?...tell your appraiser (thru the mtg co.) to lower the sales and cost approach since it is now is not an income producing property..because it would have been compd with other multiples rather than single family comps..the value could come in below your agreed upon sales price........also, there is now no comparable rent and net-operating expense schedule required because it isn't a 2-4 familiy home.. many times these rents hold the value up because it is an income producing property.......if it is fha....that should bring the value below what you agreed to pay for the home, and the fha ammendatory clause gives you an exit from the deal, and you are then entitled to a full refund of your earnest money deposit., even if the value comes in one cent below your offer price....i hope that helps....bob mcclure- mortgage now- farmington, michigan.....licensed in 19 states. (248) 974-4444 direct cell.......
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John Wirsing, Agent, Pepper Pike, OH
Fri Aug 22, 2008
First question--Is it a one family or a two family? County records are not always accurate.
When you checked it out, what was it?
Regarding your mortgage commitment costs__Review your paperwork..
Have you paid an application fee?
How about for an appraisal?
If the lender has had an appraissal done at yoiur request, that is most likely your loss if you choose to back away from the deal now.
If you want to back away from this deal-How about pursuing a different property! Chances are that the current rates are higher than what they were when you received a loan commitment.
If I can be of any assistance, please let me know.
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The Mortgage…, , Plano, TX
Thu Aug 21, 2008
Did you pay any money up front to your mortgage broker or bank? For example, have you already paid the 1 point that enabled you to buy down the rate? If so, then they may have a clause they made you sign which said if you back out of the deal the money you paid up front is non-refundable. It's not a common practice right now, but there are still those out there who do that. However, if the rate has already been locked then the loan officer should have been required to disclose to the bank what kind of property it is (one family or two family). If he locked it as a two family and the appraisal comes back as a one family then you will have a very strong case for not moving forward on the transaction - because the terms have now changed and as a result, the original commitment no longer stands. However, if no money was paid up front, there should not be any form of cancellation penalty for you backing out of the deal.
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