Looks like there are a few issues here â€“ letâ€™s start from the back:
You state: â€œSeller want us to move in earlierâ€
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, â€œWhat if the property never gets approved and escrow does not close?â€ 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 â€“ there is too much liability for all parties concerned.
You state: â€œAfter 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.â€
Answer: It sounds to me like the property is a townhouse or condo and that the development is not FHA approved â€“ 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 FHAâ€™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: â€œAfter 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.â€
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: â€œotherwise he will cancelâ€
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 â€“ 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.