We are the sellers... back October 2007 we went into contract with our buyers and signed a purchase and sales agreement on our home for $500,000. One week later the buyers received their commitment letter from the bank. Their contingency date had passed so we proceeded to push through our November closing. 5 days before the closing... the buyers called their bank and asked their loan that was already approved to be denied. 2 days later... a denial letter was faxed to our agent. They still wanted our house but used this time to renegotiate a lower price. Our backs were against the wall and sadly agreed upon a $30,000 reduction. Is this legal? It felt like a civil conspiracy. How can sellers be protected by snake like buyers?

It's not legal or illegal. If you had proof that the buyers asked for their loan to be denied then you could have declared the contract in default and either kept their deposit (if your contract stated that the deposit would be liquidated damages) or re-sold the house and held them liable for any losses. But by renegotiating you probably lost any opportunity to go after them for that money.

Did you speak to an attorney at the time? If not, why not? If so, what did they tell you? You can't expect a realtor to protect you. That's your attorney's job.

OK, you did not have to agree to the 30,000 reduction, you had the right to say NO, you could have told them full price or no price.

And at this point you should have had your attorney picked and updated with the closing info, they could have helped. Also if you knew at the time they asked for the loan to be denied, you could have held that against them to keep their earnest money.
But since you have already accepted a new counter offer, most likely you are stuck.

The only chance, and you need an attorney on this, if you can prove they asked for the loan to be denied, and you did not know this was the case at the time they told you, you have a case of fraud against them, and could perhaps merely cancell the contract and keep the escrow amount, but it will be a tough case, but it will not get your house sold for the higher amount

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Originally Posted by LisaB4657

It's not legal or illegal. If you had proof that the buyers asked for their loan to be denied then you could have declared the contract in default and either kept their deposit (if your contract stated that the deposit would be liquidated damages) or re-sold the house and held them liable for any losses. But by renegotiating you probably lost any opportunity to go after them for that money.

Did you speak to an attorney at the time? If not, why not? If so, what did they tell you? You can't expect a realtor to protect you. That's your attorney's job.

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The buyers' loan officer was the one that told our side that yes, indeed the buyers called the bank to have their loan denied. We had our attorney involved and he said that the buyers were in clear default of the contract and will lose their deposit... however, in all reality if we took them to court the possibility of our case being heard may take at least 18 months and at this time our home could not go back on the market and all monies accrued would have to be our responsibility i.e.. Mortgage payments, taxes etc. Although, the probablity of us winning at the end was high and all damages accrued reimbursed however, we did not have the money to weather an 18 month storm. We had signed another lease contract for temporary living at a condo as we were building our new home. We would have cashed out a lot more money than $30,000 if we decided to take the buyers to court. We would have still been paying our mortgage, the rent to the condo and the mortgage on our new construction. We knew our realtor couldn't do anything that is why we sought legal help however, in cases like these isn't there some type of legality in which the sellers are protected by shady buyers who string sellers along, agree to pay one price and at the end only days before a closing when the buyers know the sellers' backs are up against the wall to drop a bomb like this and demand a renegotiated price! As we all know the housing market is poor and it's not as if we had several other buyers knocking our door down where we could have told them no deal. Our buyers were truly snakes in the grass they did not even care that their deposit would be lost through their own default.

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Originally Posted by Fr_Chuck

ok, you did not have to agree to the 30,000 reduction, you had the right to say NO, you could have told them full price or no price.

And at this point you should have had your attorney picked and updated with the closing info, they could have helped. Also if you knew at the time they asked for the loan to be denied, you could have held that against them to keep thier earnest money.
But since you have already accepted a new counter offer, most likely you are stuck.

The only chance, and you need an attorney on this, if you can prove they asked for the loan to be denied, and you did not know this was the case at the time they told you, you have a case of fraud against them, and could perhaps merley cancell the contract and keep the escrow amount, but it will be a tough case, but it will not get your house sold for the higher amount

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The buyers did not care if they lost their deposit, the buyers did not care if we took them to court. They were calling the shots at the end and told our realtor this is the amount they want to pay... it's either that price or they walk. We recently signed another contract that binded us into monthly lease payments (a temporary condo) while we built our new home hence paying for that construction mortgage as well. If we took them to court we would have been paying 2 mortgages and the 7 month lease we signed with the condo.
We found out 2 days before the closing that the bank did not deny them but it was actually a phone call made from the buyer to their loan officer to stop the loan and asked for their own denial. The next day a denial letter was faxed to our realtor which we later found out that to receive a denial letter takes up to 30 days. We spoke to numerous people from the bank and they all said in order to receive that denial so quickly the buyers would have known someone with inside pull and even at that would have jumped through hoops to get the denial drawn up when it is usually computer generated. I feel our situation was a civil conspiracy between the buyers and the loan officer. The perfect scam in today's poor housing market. Shady buyers agree to a price, string the sellers along and at the end when there is no room to move the buyers drop their bomb and say, "don't want to pay that amount I want to renegotiate a lower price" and the sellers have no say! Are there any legal rights to sellers when buyers are clearly in default? Although, our situation has passed and we sadly agreed upon the $30,000 reduction... is there a way I can still prove this situation be fraud?

Ok, in the new contract for sale was there anything indemnifying the buyers against legal claims as a result of the loss of the loan commitment? Because if there wasn't I would go to closing and after all the paperwork was signed I would have the buyers served with a summons for a suit seeking to recover losees due to their fraud. I would then file a lis pendens against the house to prevent them from selling it.

In my opinion they committed a fraud by requesting a loan denial in the hope that they could extort a lower price from you. You might even talk to your local prosecutor, though their willingines to forfeit their deposit might mitigate any extortion charges.

But I really do believe you would have a cause of action against them. So consult your attorney and see if you can sue them after closing.

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Originally Posted by jsp128

The buyers did not care if they lost their deposit, the buyers did not care if we took them to court. They were calling the shots at the end and told our realtor this is the amount they want to pay... it's either that price or they walk. We recently signed another contract that binded us into monthly lease payments (a temporary condo) while we built our new home hence paying for that construction mortgage as well. If we took them to court we would have been paying 2 mortgages and the 7 month lease we signed with the condo.
We found out 2 days before the closing that the bank did not deny them but it was actually a phone call made from the buyer to their loan officer to stop the loan and asked for their own denial. The next day a denial letter was faxed to our realtor which we later found out that to receive a denial letter takes up to 30 days. We spoke to numerous people from the bank and they all said in order to receive that denial so quickly the buyers would have known someone with inside pull and even at that would have jumped through hoops to get the denial drawn up when it is usually computer generated. I feel our situation was a civil conspiracy between the buyers and the loan officer. The perfect scam in todays poor housing market. Shady buyers agree to a price, string the sellers along and at the end when there is no room to move the buyers drop their bomb and say, "don't want to pay that amount I want to renegotiate a lower price" and the sellers have no say! Are there any legal rights to sellers when buyers are clearly in default? Although, our situation has passed and we sadly agreed upon the $30,000 reduction... is there a way I can still prove this situation be fraud?

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All else being said you can only PROVE fraud if you can PROVE fraud and PROOF is not what bank employees told you - you would need solid proof. Likewise, if you can prove some sort of conspiracy, sue for that.

This is happening in my area and high deposits on contracts - too high for the buyer to lose - are being demanded because buyers are trying to re-negotiate as the market drops.

If you have the proof (or can get the proof), sure, sue them for your loss, sue them for fraud.

Unfortunately this is not a moral issue, it's a legal issue, and you need proof. I'm very surprised that the Bank's mortgage department employees are sharing info about someone else (the buyers) with you but policy varies from bank to bank.

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Originally Posted by ScottGem

Ok, in the new contract for sale was there anything indemnifying the buyers against legal claims as a result of the loss of the loan committment? Because if there wasn't I would go to closing and after all the paperwork was signed I would have the buyers served with a summons for a suit seeking to recover losees due to their fraud. I would then file a lis pendens against the house to prevent them from selling it.

In my opinion they comitted a fraud by requesting a loan denial in the hope that they could extort a lower price from you. You might even talk to your local prosecutor, though their willingines to forfeit their deposit might mitigate any extortion charges.

But I really do beleive you would have a cause of action against them. So consult your attorney and see if you can sue them after closing.

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The question is how do I prove their fraud? It was a phone call made from the buyer to their loan officer demanding the loan to be stopped and denial to be issued. Surprisingly enough, this was told by the loan officer herself who spoke to our realtors supervisor. We requested all original bank copies to be sent so that we could cross reference them to the copies sent from the loan officers desk. We doubted the papers authenticity. I recently came across all these documents again and noticed the loan officers signature not signed on the "supposed" denial letter. Do you think this was an illegal cruel manipulation for us, the sellers, to break our contract thinking the buyers were denied when in fact they really were not so that we would break the original contract and draw a new to make the old null and void?

You need to get an affadavits from their bank that the loan was denied at their request and that the bank was prepared to go to closing and honor their commitment until that time. The loan officer will probably be required to testify in court or provide a deposition. Without that statement though, you have no case. They can just say the bank decided that they could only afford $30K less.

If they truly did this, it certainly appears like they took a chance that you would feel forced to go through with the sale at a lower price. Were they aware that you had leased temp quarters?

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Originally Posted by ScottGem

You need to get an affadavits from their bank that the loan was denied at their request and that the bank was prepared to go to closing and honor their committment until that time. The loan officer will probably be required to testify in court or provide a deposition. Without that statement though, you have no case. They can just say the bank decided that they could only afford $30K less.

If they truly did this, it certainly appears like they took a chance that you would feel forced to go through with the sale at a lower price. Were they aware that you had leased temp quarters?

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Yes, the buyers were aware we were building a new home and knew we were going to lease temporarily until our home was built.

When the denial was faxed to our realtor they said our closing will not take place. The bank will not schedule a committed time if a written denial has been issued so, the best thing we could do to save the deal was to work with the buyers and draw up another contract.

The bank approved their loan 2 months prior and the buyers were putting $220,000 down on a $500,000 home. No way the bank could have all of a sudden turned down their loan especially last minute and then to say they could only afford $30,000 less. This was a strong buyer.

Your best option right now is to sit down and have a consultation with a litigation attorney and see if they think you have a case. If you can get the loan officer to testify then you might have a pretty good case for fraud and a litigator might be willing to take the case on a contingency basis.

I agree with Lisa. Especially when you can put a lien on the home.

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Originally Posted by LisaB4657

Your best option right now is to sit down and have a consultation with a litigation attorney and see if they think you have a case. If you can get the loan officer to testify then you might have a pretty good case for fraud and a litigator might be willing to take the case on a contingency basis.

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To make matters worse when we received the denial letter that was faxed over it stated the reason of denial was due to value or type of collateral insufficient. We were all confused by this reasoning because the buyers had a strong credit rating and nearly putting half down on our home. We reviewed the original purchase and sales agreement which had NO CONTINGENCIES whatsoever and demanded a copy of the commitment letter from the loan officer to be faxed over asap so that we could cross reference the two documents. We started to doubt the authenticity of the papers they provided. We had such a problem getting a copy from the loan officer that was legally our right. The buyers loan officer would not return any of our phone calls as if she was purposely holding us off. Finally the day before the new closing which took place one week after the original closing... copies of both the commitment letter and denial letter were faxed over. To all our amazement including our realtor, her supervisor and our attorney a condition was stated on the commitment lettter that the appraisal of our home had to come in at the sale price of $500,000. The appraisal came in at $480,000 excluding various upgrade of appliances and equipment which easily totalled an excess of $20,000.
This contingency was no where in sight until the day before the new closing. With this contingency in place... it would have supported the reason of denial. To this day, I doubt the validity and authenticity of the contracts... it seemed that particular condition was added to support the bogus denial which the bank never initially requested it was the buyer that asked for the denial now with the help of someone within the bank... it was time to cover their tracks so that in legal terms it will look like everything was legit. If in fact that $500,000 appraisal had to come in at that number via banks rules and regulations... how come this loan was not denied before or by the contingency date? Why wait only days before the closing to tell the sellers the buyers have been denied? That would be bank default and that would be unlikely and a major lawsuit.

I think the loan officer would also be unlikely to testify because she would be opening a can of worms for herself. She admitted to our agents supervisor that it was the buyer that called to ask for his own denial. If so, why would the reason of denial be: value or type of collateral insufficient if denial was requested by the buyer not the bank?

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Originally Posted by jsp128

how come this loan was not denied before or by the contingency date? Why wait only days before the closing to tell the sellers the buyers have been denied? That would be bank default and that would be unlikely and a major lawsuit.

I think the loan officer would also be unlikely to testify because she would be opening a can of worms for herself. She admitted to our agents supervisor that it was the buyer that called to ask for his own denial. If so, why would the reason of denial be: value or type of collateral insufficient if denial was requested by the buyer not the bank?

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These are questions to ask an Attorney -

The loan officer would have no choice but to testify if subpoenaed into Court. Then she has two paths - tell the truth or lie.

If the contingency was in existence and is legit, even if the buyer requested the denial, the bank still approved it based on the contingency which lets the buyer off the hook - the contingency was not being met. Doesn't matter who realized it. The buyer didn't simply ask that the mortgage be pulled for no reason - the buyer claims to be relying on the terms of the contingency.

I think you have to do discovery to determine the validity of the contingency. I know when I have purchased and sold I have copies of all contracts and approvals in all directions, including contingencies. What do your copies indicate?

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Originally Posted by JudyKayTee

All else being said you can only PROVE fraud if you can PROVE fraud and PROOF is not what bank employees told you - you would need solid proof. Likewise, if you can prove some sort of conspiracy, sue for that.

This is happening in my area and high deposits on contracts - too high for the buyer to lose - are being demanded because buyers are trying to re-negotiate as the market drops.

If you have the proof (or can get the proof), sure, sue them for your loss, sue them for fraud.

Unfortunately this is not a moral issue, it's a legal issue, and you need proof. I'm very surprised that the Bank's mortgage department employees are sharing info about someone else (the buyers) with you but policy varies from bank to bank.

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None of the employees I spoke to at the bank shared info about the buyers to me. I simply asked a basic question about... how long after a denial... is a written denial issued, mailed and received.

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Originally Posted by jsp128

None of the employees I spoke to at the bank shared info about the buyers to me. I simply asked a basic question about... how long after a denial... is a written denial issued, mailed and received.

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I was referring to your statement: "We spoke to numerous people from the bank and they all said in order to receive that denial so quickly the buyers would have known someone with inside pull and even at that would have jumped through hoops to get the denial drawn up when it is usually computer generated."

When you said "the buyers" and not "a buyer" I thought they had given you personal info.

Sorry.

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Originally Posted by JudyKayTee

These are questions to ask an Attorney -

The loan officer would have no choice but to testify if subpoenaed into Court. Then she has two paths - tell the truth or lie.

If the contingency was in existence and is legit, even if the buyer requested the denial, the bank still approved it based on the contingency which lets the buyer off the hook - the contingency was not being met. Doesn't matter who realized it. The buyer didn't simply ask that the mortgage be pulled for no reason - the buyer claims to be relying on the terms of the contingency.

I think you have to do discovery to determine the validity of the contingency. I know when I have purchased and sold I have copies of all contracts and approvals in all directions, including contingencies. What do your copies indicate?

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This is where the problem starts and possibly has no end. Our realtor never received the commitment letter that was supposedly sent from the banks loan officer via fax one week after the purchase and sales agreement was drawn and signed. Though a verbal confirmation was made from loan officer to agent. So, alterations after this point could have easily been made because she never had nor followed up with a request to have a hard copy faxed over again. We took her word and assumed all systems were go.

Looking through buyer denial copies provided from the bank... I noticed the loan officers signature was not signed however, the buyer denial copy faxed over directly from the buyers to our agent has the signature of the loan officer. Why wouldn't the signature be on original bank copies? Aren't all legal contracts signed by the parties involved? Does this make this buyer denial fraud?

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Originally Posted by jsp128

This is where the problem starts and possibly has no end. Our realtor never received the commitment letter that was supposedly sent from the banks loan officer via fax one week after the purchase and sales agreement was drawn and signed. Though a verbal confirmation was made from loan officer to agent. So, alterations after this point could have easily been made because she never had nor followed up with a request to have a hard copy faxed over again. We took her word and assumed all systems were go.

Looking through buyer denial copies provided from the bank... I noticed the loan officers signature was not signed however, the buyer denial copy faxed over directly from the buyers to our agent has the signature of the loan officer. Why wouldn't the signature be on original bank copies? Aren't all legal contracts signed by the parties involved? Does this make this buyer denial fraud?

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I'd be looking at my realtor - and your Attorney who should have been overseeing this entire process - with narrowed eyes but if you don't have an original and then doctored document, I think you're out of gas.

- unless it was a conspiracy from the start and I don't think you could ever prove that.

So go and ask an Attorney -

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Originally Posted by JudyKayTee

I'd be looking at my realtor - and your Attorney who should have been overseeing this entire process - with narrowed eyes but if you don't have an original and then doctored document, I think you're out of gas.

- unless it was a conspiracy from the start and I don't think you could ever prove that.

So go and ask an Attorney -

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Still doesn't answer the question how the bank can approve then deny the buyers loan after the contingency date passed. If indeed, the appraisal was the issue... an extension of the contingency date should have been requested to deal with that matter. And though the appraisal came slightly lower the exclusions of several upgrades made more than enough difference needed. This home was only 6 years old... it was no money pit... on the appraisal report it stated our home was in excellent condition... 2 year brand new.

If the buyers had a problem with the appraisal... it should have been voiced and dealt with by the contingency date. Remember, there were no contingencies in the purchase and sales agreement... they signed and agreed but all of a sudden it is an issue for them? It was brought to their attention by the loan officer. She said the appraisal amount came low and the buyers should renegotiate a lower price even though all contracts were signed.
Is this a loophole in the system?