My buyer received a mortgage commitment letter, now my lawyer states that he was refused the mortgage because he didnt' met the mortgage

Asked by Michael, New Jersey Thu Oct 15, 2009

"conditions." The buyer had 20% down and was financially strong. I'm not quite sure what the unmet conditions were (I'll find out soon) but I had already moved out of the house. Am I entitled to the buyer's down payment currently held in escrow?

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19
Monica, Home Buyer, Princeton Junction, NJ
Thu Jul 10, 2014
Were you able find out the reason for mortgage denial after getting commitment and were you able to keep buyers deposit
0 votes
Hi Monica,
Are you currently in a contract for a home purchase & asking this question?
The question is from 2009 but every transaction is unique, so this question can really be addressed to an attorney. That said, a lender can refuse the loan if the buyers income,credit or employment situation changes before the closing. The reasons would be evaluated by the attorneys.
Flag Fri Jul 11, 2014
Anthony Cal, Both Buyer And Seller, Cliffside Park, NJ
Sat Dec 5, 2009
Hey Mike, I am going through something similar right now and I know how frustrating this all is! I am currently seeking to sell my house to purchase another home and because the buyer cannot secure a commitment things are up in the air right now. I sense cold feet on the buyer's end and unfortunately my lawyer is not offering any advice on how to figure this out for sure. My agent cannot get an answer from the buyer as to when they will receive a commitment and we have pushed back the original commitment date 1 month to allow more time in this "crazy" mortgage market. What is strange is that I heard that a commitment was given by the buyers mortgage company and then rescinded because the buyer went out and bought a car. One thing I learned is that every mortgage broker will advise their clients not to do anything financially stupid (like buying a car) until after closing a property. What makes this even more curious is that the buyer's good friend is also the mortgage broker which means his advice was given to possibly get out of a contract through a path of least resistance. Even after I found this out and processed the information my agent advised me to keep my head up because the buyer went the route of finding a co-borrower to obtain the mortgage. It seemed like we were on the right track and I demanded updates in a timely fashion. So far we have not been given any updates on the status of the loan. I continue to feel like the buyer is waiting for me to get frustrated and stick a fork in the deal to allow them to get the down payment back effortlessly. My agent has demanded we see the specifics of why the commitment was rescinded in the first place but to no avail. We are only going by what the buyer has told us and have no proof of what actually has happened. I want to sell my home and according to my lawyer the other party still wants the home. It just seems like this is a well constructed plan for me to shut it down completely. Any advice on all this?
0 votes
Nathan Harary, , Manasquan, NJ
Sat Nov 21, 2009
A good mortgage loan officer will always review the open conditions with you. These conditions, are common in a commitment and can be as simple as requiring you to bring proof of ID to closing. You might be asked to show an updated paystub, bank statement etc.
0 votes
Nathan Harary, , Manasquan, NJ
Sat Nov 21, 2009
A good mortgage loan officer will always review the open conditions with you. These conditions, are common in a commitment and can be as simple as requiring you to bring proof of ID to closing. You might be asked to show an updated paystub, bank statement etc.
0 votes
Deborah Madey, Agent, Brick, NJ
Wed Oct 21, 2009
Hi,

Thanks so much for returning to the forum and providing updates.

From your description, it sounds like the buyers were not seeking an "out" and really were denied their loan. They, like you, are subject to the bank's approval process. A loan officer issues an initial prequal or preapproval. After a loan is completely packaged, it is sent to a processor, and then to an underwriter. There are several levels of interim steps internally with a lender prior to the final "clear to close" is given. Until there is a "clear to close" given, there is always a possibility of denial. What were the conditions listed on the commitment? Have you seen a copy of the commitment?

It's true that a buyer can, at times, use the mortgage contingency as an escape to terminate a contract. Even when that happens, many sellers find their best solution is to return deposits, quickly return to the market and find a new buyer. Although that may seem unfair, it is often the best path. Litigation can be costly, delay a sale, and it can be difficult to prove that a buyer "could have" gotten their loan. Negotiated settlements are an alternative solution. The approach that is correct for a buyer or seller in a specific contract depends upon an evaluation of all of the facts and actual decisions should only be made with the advice of legal counsel.

It seems, though, that with your buyers, legitimately want to purchase. Perhaps they are also surprised, disappointed and inconvenienced. Perhaps they, too, arranged movers, made arrangements to vacate their current residence, etc. I do realize that your expense, inconvenience and uncertainties are your priority.

During the early and mid-2000's, financing was easy, but the scrutiny of the loan packages as it progresses through levels of approval have substantially icreased. I have witnessed strong buyers, with 750 credit scores and 20% down, stable work records, strong cash reserves, and preapprovals find that they were denied at a very late stage...through no fault of theirs. I have seen buyers in this circumstance be very surprised, even insulted or angry over it. It's a reality of the loan underwriting process today.

Look at the commitment, and discuss the "conditions" with your attorney and agent. Your attorney and agent are the best sources of advice on reading the intent of the buyer. They will rely upon the written documents, and the communicaitons from the buyer's agent and buyer's attorney. That will still not provide you guarantees, so I will wish you an added ounce of luck. I hope your buyers are successful with their new lender.

Deborah Madey - Broker
Peninsula Realty Group - New Jersey
732 530-6350
0 votes
Jenet Levy, Agent, New York, NY
Sat Oct 17, 2009
Unfortunately, in this lending environment, banks are pulling their commitiment letters for all sorts of technicalities. I am seeing it more and more. Clearly your buyer didn't do anything wrong, as it is the appraiser's lack of ability to find comps. Whether I am the buyer's or seller's agent, I show up to an appraisal with an armful of good comps so the appraiser doesn't have to do the digging and maybe come up with not-so-good ones. What I would suggest is that your agent and the buyer's agent do the research. They both have a much greater vested interest in this sale than the uninvolved appraiser. There may be a scarcity of comps for your condo, but that is really not a legitimate reason for a sale, agreed upon by buyer and seller, to fall by the wayside. Definitely have the two agents supply good comps to the new bank.

Jenet Levy
Halstead Property, LLC
jlevy@halstead.com
(212) 831-4268
0 votes
Francesca Pa…, Agent, Manasquan, NJ
Sat Oct 17, 2009
Michael,

Be advised that they are two types of "commitment" letters . . . a prequal or a preapproval letter. Just a few years ago, we Realtors paid little attention to the difference between the two as both appeared to be a guarantee of qualification.

In today's market, the preapproval (wherein a potential buyer is forced to prove much more quantifying info before making an offer) is preferable and more secure.

As for if you are entitled to the escrow monies is a question for attorney, but in my experience, if a buyer is declined by the bank, it is a circumstance beyond their control (a contingency) and precludes you from any recourse, But, I'd check with your attorney regarding the circumstance.

Love and Peace
Francesca, Realtor,ePro, SRES
Web Reference:  http://www.PatrizioRE.com
0 votes
Jeanne Feeni…, Agent, Basking Ridge, NJ
Fri Oct 16, 2009
Hi Michael, thanks for the update - it is always great to hear back from posters - Trulia is a great forum and I am so glad it has helped you.

The market is so bumpy right now, if it isn't one thing it is another. The appraisals and bank guidelines are more restrictive for sure - my advice is to hang in there - from this update, it sounds as if you have a good buyer and I will keep my fingers crossed that they are able to secure their financing elsewhere and that your transaction moves forward to a successful outcome.

It sounds like a good deal that has hit a bump,which is a whole lot better than a deal gone bad. Good luck to you and your buyer in making it to the finish line!!

Best,
Jeannie Feenick
"Unwavering Commitment to Service"
Search the MLS at http://www.feenick.com
Web Reference:  http://www.feenick.com
0 votes
Michael, Both Buyer And Seller, New Jersey
Fri Oct 16, 2009
Hi All,

Thank you so much for all your advice! This website is awesome, a great forum!

I found out a little bit more why the buyers were denied the mortgage. Per my lawyer, the buyers were denied because the appraisers were not able to find a "comparable comparison" with in a 1 mile radius. The condo did appraise for the selling value though, that's where I am confused. After the appraisal, the mortgage commitment was sent. However, after further delibration, the appraisal was rescinded due to the fact that they couldn't find a comp in the area. The market has been quite tough in my neighborhood but I still dont' understand how it could appraise at value, then get denied

Per my lawyer and realtor, they mentioned that this particular lender is known for being quite strict. Again, my buyer had 20% down and a great credit score. From what I hear now, the buyers are going to go through another lender and closing will be postponed another month.

Any comments/advice would be appreciated.

Thank you all.
0 votes
Jeanne Feeni…, Agent, Basking Ridge, NJ
Fri Oct 16, 2009
Hi Michael, you've gotten good advice here - I am so sorry to hear that you have encountered this set back. Mr. Miner reminds that consulting with your attorney or another, if you feel you need additional counsel is your best bet. Ask the attorney to clarify if you are free to begin the process of remarketing if the deposit monies are still held. I encountered a situation in which the property was in limbo until the monies were returned.

Delaying the return of deposit monies will surely inconvenience the buyer, but do find out if it will negatively impact your ability to market and/or move forward with another transaction.

There is likely little solace in this comment, but there are many transactions encountering issues in this nervous market. Take a deep breath, consult with an attorney and take the action that will be in your best interests.

Good luck,
Jeannie Feenick
"Unwavering Commitment to Service"
Search the MLS at http://www.feeenick.com
Web Reference:  http://www.feenick.com
0 votes
Audeliz Angie…, Agent, Westfield, NJ
Fri Oct 16, 2009
Michael,

I was actually in this situation two years ago as a buyer's agent. My buyer purposefully did not follow-up because other people in his company were being laid off. His fear was that he would be next.

In his situation, he cancel the contract one day before the mortgage commitment date and he was within his right. One of the reasons I am sharing this with you is that

a. It is possible that a buyer will not purposefully follow-up.
b. It would have been difficult, time consuming and expensive for the seller to prove breach of contract when we exercise the mortgage contingency within our contract.

Now, James Miner is right in that there are probably too many variables to give you a clear and concise response.

But you have options at this point:

1. If you are concerned that the buyer purposefully breached contract, your attorney should send a letter indicating so so that you can see what conditions were not met (it sounds likeyou are in the process of doing that based on one of your followup comments).

2. Remarket the home with your realtor and secure a another buyer. If the amount offer is less than original purchase price and you are now responsible for two mortgages instead of one, you are experiencing real damages. Keep track of this information, which will be the bases of your case if you sue in the furture. The process could take 6 months to 2 years.

3. Take solace in that the real punishment to the buyer will be his/her inability to access their down payment funds. You and the buyer have to agree on what to do with the deposit in order for the attorney, regardless of who is holding it, to release escrow.

4. The original buyer can focus on satisifying the mortgage conditions or reapply with different mortgage company to show good faith.

I hope that helps!
0 votes
Joe Chang, , Paterson, NJ
Thu Oct 15, 2009
You have every right to inquire and get a clear answer as to why, specifically, the buyer's lender backed out. If the answer doesn't sound appropriate then this sounds like a breach of contract case. Hopefully, your attorney is holding the deposit in his trust account, but you can't just keep the deposit, you'll have to go to court, assuming there is no out of court settlement, and prove what your damages were. The easist way to determine this, is waiting for another buyer, closing on the deal and seeing how much less you made. You will also add in your additional carrying costs. It is very important to send a "time is of the essence" letter to the opposing party, to make clear, the breach therefore giving you a cause of action to sue.

To sue for the deposit, you'll have to use a different attorney because the first attorney will likely be a witness at trial, if there is one. If ultimately it was the lender's fault, for issuing a commitment letter then not following through with a loan, then it's the buyer's job to then sue the lender. I've seen a lot of cases where the money just sits in escrow for a long time because no one wants to sue for it.
*Please note that this is general information only, and not to be construed as legal advice, if you would like a consultation please feel free to call and make an appointment"
Joseph A. Chang & Associates, LLC * Attorneys at Law
Paterson and Passaic, New Jersey
Passaic, Bergen, Union, and Essex Counties
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0 votes
Dallas Texas, Agent, Dallas, TN
Thu Oct 15, 2009
Many concerns issues why buyer did not meet the lender guide lines

No one can render a statement if you keep buyers down payment till contract is reviewed. Buyer and seller must submit an amendment to title company release money from escrow Realtor brokers must sign.

Confer with your listing agent for all particulars. Sorry to read about what has happened.

National Featured Realtor and Consultant, Texas Mortgage Loan Officer, Credit Repair Lecturer
Follow me on Twitter: http://twitter.com/Lynn911
Lynn911

http://www.lynn911.com
0 votes
James Miner…, , Westfield, NJ
Thu Oct 15, 2009
Michael, your question can not be answered without a review of the Contract, the attorney review letters and the mortgage commitment. The answers you are getting here may (or may not) be correct in general terms, but certainly do not take into account the specifics of your situation.

Talk to your lawyer, or talk to another lawyer if you don't have confidence in the advise you are getting from your lawyer.
0 votes
Maria "Carme"…, Agent, Jersey City, NJ
Thu Oct 15, 2009
Buyers are always protected by the mortgage contingency clause. Unfortunately for you, they have a right to get their deposit back.

Before the market crashed, the receipt of mortgage commitment was sufficient gauge that you can be assured of closing. Today, you can never be sure.

I would have advised my client to wait until a "clear-to-close" was given by the lender.

Good luck.
0 votes
Joe Montenig…, Agent, Sewell, NJ
Thu Oct 15, 2009
Think of it this way.... what if the buyer lost his job the day before closing? Of course they couldn't get the mortgage even though it was previously approved. This is the buyer's "out". Read more about similar issues on my blog http://hometeamnj.com/?p=436

You ask if the buyer was irresponsible and maybe even caused this commitment to be cancelled by not satisfying the conditions? It's hard to prove this and your lawyer knows it. YOU should also bear some responsibiblity for not reading your buyers commitment and looking at the conditions.... were they significant conditions?

There's a significant deposit from the buyer, and they'll be anxious to get it back once the deal is officially dead..... ask your lawyer to negotiatie with the buyer to give you a few $ for your troubles and you''ll agree to sign off quickly on the escrow release forms so he can get his deposit back quickly. Take what you can get, if anything and move on because I suspect you won't get a penny by going to court.... except high legal bills.

Good luck....
I hope that's helpful... if so, click the "thumbs up" below,

Joe Montenigro
Broker Owner, REMAX Home Team
serving Gloucester Twp and Southern NJ
http://hometeamNJ.com
http://joemonte.vflyer.com
http://www.facebook.com/joemontenigro
0 votes
Bob Seidenbe…, , Brooklyn, NY
Thu Oct 15, 2009
Did you read the contract of sale? If the contract did not have this clause in it, well, I am afraid your lawyer missed the ball. Isf the buyer had a pre-approval from the bank, he should have gotten the committment.
Bob Seidenberg
Fillmore R E
Brooklyn, NY
0 votes
Michael, Both Buyer And Seller, New Jersey
Thu Oct 15, 2009
Thanks Jill for the information! My contingency is that they were actually approved for the mortgage no? Since they did receive a mortgage commitment letter - the thing is that they did not follow up with the conditions. My lawyer did state that we can either cancel the deal or let them find another lender . . .but I will be out another month of mortgage. The thing is, I had definitely inquired if it was "safe" to move and I was told everything was okay. Again, the buyer put down 20% which is in escrow now. From what I've been reading, the conditions to fulfill the mortgage commitment are usually not that stringent . . . he did already receive the commitment letter. Hence, the buyer most of faulted in some way. Why should I be responsible for their irresponsibility? I have moved to fulfill the closing date as stated on the contract - 4 days before the contract I am told they aren't approved. Someone dropped the ball on this one.

Thanks again for any advice this is quite stressful and frustrating.
0 votes
Jill Southren, Agent, Denville, NJ
Thu Oct 15, 2009
Hi Michael -
I don't think so since the contract was mortgage contingent always. Your buyers "out" was always through him/her not receiving their mortgage. That is why in today's market, I always have the buyers, when I represent the seller, get approved by two lending institutions so when one bank says "no", the other should be able to step in and say "yes". Good luck - this is a tricky one, but one we see happening more and more often. Need to cover yourself....your attorney and/or realtor should have made sure that there were two banks involved approving your buyer to avoid this situation. Please feel free to reach out to me through my website - http://www.JillSouthren.com Good luck - Jill
Web Reference:  http://www.JillSouthren.com
0 votes
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