Would I lose my escrow money if I unable to get a mortgage due to the property appraisal coming back as 'unique'?

Asked by natu.raj, 98033 Sun Nov 18, 2012

I went into contract with the seller with pre-approval from a lender. But unfortunately due to the non responsiveness of the lender, I switched to a different lender. I applied for the loan within the timeframe specified on the contract( 5 days after mutual agreement). However my agent never filed the addendum to change lenders with the seller, which removes my financial contingency. Now the seller has asked me to release the escrow amount and use the lender they suggested in order to get an extension or my agent tells me that I would forfeit my escrow amount within three days of the closing date automatically .

The lender I am currently working with strongly believes that I will not be able to get a mortgage insurance for this loan since there are no comps for this place and hence no bank would lend me money. My credit score is pretty good (760 ) and I want to do 5% down. Is there any way that I can get back my escrow money?

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Kary Krismer, Agent, Renton, WA
Mon Nov 19, 2012
I'm glad you spoke to some attorneys. Yes you can change lenders within the 5 day period, but not loan types.
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natu.raj, Home Buyer, 98033
Mon Nov 19, 2012
Thank you for all the insights, I really appreciate it. I did speak to an attorney today (actually 2 just to be safe) - it looks like I was steered in the wrong direction by my agent. Now I understand that there is no 'lender' in my contract per se (the pre-approval doesnt mean anything) and as long as I had applied for the loan within the 5 days specified, the contingency is still valid. The only part being that I said 20% down and not 5% down .

I have contacted the seller to let them know I will release 1k if they extend the closing date, otherwise I will walk. I am amazed at how my agent still thinks that I will automatically lose my escrow money within three days after the closing date passes and refuses to believe what I am telling him. Thanks everyone for taking the time to answer and your insights.
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Raj--If you talked with an attorney, you know that you may lose your earnest money if you change they type of loan (including the down payment) and you or your lender does not ask for consent from the Seller. Be careful and good luck.
Flag Mon Nov 19, 2012
Kary Krismer, Agent, Renton, WA
Mon Nov 19, 2012
Michelle, the provisions regarding lower purchase is part of the Financing Addendum, so likely no longer applicable if the financing contingency is waived. That's part of the reason I typically include Form 22AA in my contracts.

Read the last sentence of paragraph 6 of Form 22A, and this piece I wrote when that sentence was added: http://blog.seattlepi.com/realestate/2010/01/30/statewide-fi…
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That's the question--is the financing waived. I don't know what happened when, but it may not have been.
Flag Mon Nov 19, 2012
Michelle Spo…, Agent, Bellevue, WA
Mon Nov 19, 2012
Hi, Raj. Generally, you can change lenders as much as you want during the initial five-day period, but you should provide proof of your pre-qualification with the lender you close to the Seller's agent. I would be surprised if an appraiser can't come up with a value. I've been in the business for 27 years and have helped buyers or seller purchase some unusual properties. We were always able to get an appraisal. There is a mechanismin in the contract that deals with a property whose value comes in lower than the appraised value. If the Seller won't agree to reduce the price, you can terminate the transaction and be refunded the earnest money, provided you provide the proper notice and do so within certain timeframes. If your lender doesn't approve the loan, they will write a letter stating that and you can receive your deposit back. Your agent should be guiding you through the process and provide the appropriate notices. I wouild recommend consulting an attorney for review of your specific circumstances.
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Jirius Isaac, Agent, Kenmore, WA
Mon Nov 19, 2012
I would use the sellers lender & have them sign something that says you have your financing contingency in place still. that way, if that lender fails, you will not lose your ernest money. Any other option is someone risky as to getting your ernest money back. Good luck to you.
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Darrell Hess, Agent, Asheville, NC
Mon Nov 19, 2012
Depending on your contract and what is stated within is how the parties would determine who would get the earnest money. I would reread that contract and see specifically what it states regarding loss of earnest money. Not sure about your current state laws, but in Georgia, the Broker or one holding the earnest money gets to decided who it is released to. If that decision does not sit well then you are looking at going to court. Typically this never happens, the going to court part, because earnest monies being held is usually way way less than the cost of going to court. Hopefully you do not have a large sum tied up in earnest money.
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Kary Krismer, Agent, Renton, WA
Mon Nov 19, 2012
This is really a question for a lawyer, who would answer the question after looking at your specific contract. It sounds like your contract uses our standard state-wife forms, so you may have issues. That said, if your agent also used Form 22AA, the appraisal addendum, you could still be okay if the only reason you cannot get financing is due to the appraisal. I typically include that addendum for a few different reasons, so you might want to check if your contract included that form. You could also consider switching yet again to FHA.

Again though, this really requires an attorney to review your specific contract and facts.

Finally, a bit unclear what you mean "there are no comps for this place." Do you mean at the price you are paying? I'm not sure how a lender would know that. It is not typically their area of expertise.
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My NC Homes…, Agent, Chapel Hill, NC
Mon Nov 19, 2012
Based on what you've written, you need to use the the Lender the Seller is suggesting in order to get the extension required to protect your earnest money.

I hate to say it but it does sound as if you have a legitimate beef with your agent who according to what you've written has jeopardized your earnest money deposit by their failure to prepare and distribute the appropriate documentation when you initially changed lenders. I would suggest to my broker if what you have written is true that should you lose your earnest money you'll be filing a complaint against them and will pursue them to get reimbursed. (They have Errors and Omission insurance) and suggest they do everything in their power to make sure your money is protected.

I would ignore what your current lender said, they may or may not be correct. I would try to work with the Seller's suggested lender and would require an extension not only for the mortgage approval, but for the settlement date and the period your escrow is protected, if you're unable to get all of the above I'd immediately terminate the contract, request the return of your escrow and contact an attorney if necessary.

I hope things work out and you can in fact close on the property.
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Maria Gilda…, Agent, Manchester, CT
Mon Nov 19, 2012
Based on your narrative of the situation, your best option is to use the lender suggested by the seller as you no longer have a mortgage contingency in place to protect your escrow money. Having said this, I am not in a position to tell you that it will guarantee your getting the escrow money back unless the seller will allow you to grant mortgage contingency upon switching to a lender he/she recommended.

Best of Luck,
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Dan Tabit, Agent, Issaquah, WA
Sun Nov 18, 2012
I'm sorry for your predicament. You are in that area where we have two choices, pretend to be lawyers and give you our unlicensed legal opinion or refer you to a lawyer.
Step one would be for you to carefully read the financing addendum, 22A in your NWMLS contract. Your understanding will not trump an attorney, but by understanding what is written, you'll be in a better position to ask the questions necessary should you speak with one.
Applying with the seller's preferred lender may not be the worst thing. A lenders job is to get the loan funded and if by applying with them, you get the extension and you could preserve the sale and still get the house. If your first lender still comes through, you may be able to revert back to them in order to close sooner, which it sounds like something the seller is interested in.
Unique properties do present issues. Log cabins, large acreages and others are hard for appraisers to comp. If this is the case, ask your Realtor to find some comparables to provide the appraiser, this could help your case with either lender.
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Eli Schneider, Agent, Los Angeles, CA
Sun Nov 18, 2012
Hi. I'm a REALTOR® with Keller Williams Larchmont. This is a tricky situation, and there are some important details that could swing this one way or the other.

1. Did you remove your loan and/or appraisal contingency yet? If you had an appraisal contingency in place and the property didn't appraise for the expected value, then you are entitled to cancel the escrow (with mutual written consent) and recover your earnest money deposit. This should be done before the due date for contingency removal. If that date has passed, then there are a couple of other factors to consider, i.e. did the seller present you with a notice to perform?

2. Did you instruct your agent to file the necessary addendum? If you did, and your agent was negligent, you may have a case to recover those funds from your agent if the seller wins them in arbitration.

As for your lender, I always recommend getting a second opinion. I would be happy to refer you to a trusted loan banker I work with. As always, it won't cost you anything to have a conversation, and it sounds like you could use a little more outside advice.

Please feel free to call or email me. I would be happy to help you resolve this issue, and I can refer you to a reliable and professional lender so you can best understand all your options.

Eli Schneider

Follow me on Twitter @RealEstateEli

Keller Williams Larchmont
118 N Larchmont Blvd.
Los Angeles, CA 90004

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