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mellon977 · Oct 3, 2007, 09:58 PM

My parents "were" in the process of selling their home. The buyers had gotten approved for the loan and signed the contract to close on the house. They put down 1/2 of their down payment as one of two. The second payment would be transferred at closing.
The shady buyers decided they don't want the house and for weeks were trying to get a letter of denial from their mortgage company, who at first was telling them no but as of this week, a denial letter was faxed to our realtor.
Now, how can this be possible? They were given the 10-day opportunity to back out of their loan... never did. Then they went on to sign the contract to buy the house... and now they have a denial letter? Could someone be lying? Could they have affected their finances somehow within the past few weeks to have finally received that letter of denial?
My parents would not hurt a fly on the wall and they've already put 1 of two down payments on their prospective new home and now they're in financial limbo! They are being told that they should sue for the $20,000 depreciation of the house for the time it's been off the market... in addition to the $5,000 worth of water/heating that this couple demanded get down before closing... can they win a case here? This is in NJ

Fr_Chuck · Oct 3, 2007, 10:04 PM

If they can prove with evidence that the loan was really approved, you have a good case.

DianeV Sr Loan Officer · Oct 6, 2007, 09:09 PM

Any number of things could have happened. First of all, pre-approval is not necessarily a commitment to lend. If the borrowers could not meet the contingencies of the pre-approval then the loan may be a legitimate denial. If they were approved, it is possible the rate lock expired and they were subject to a higher rate that they could not afford.

It would be a great risk for a lender to issue a false denial. There are too many regulations that banks have to adhere to for auditing and compliance purposes. It is simply possible that the borrower either withdrew the loan, or did not meet the conditions of the commitment.

Sometimes commitments are issued with "subject to". i.e. additional paystub, updated bank statements, etc. These have to be provided within a certain time frame. If the borrower does not produce the items requested, the lender can then withdraw the loan.

I don't know what the ramifications would be, but without seeing the reasons for the denial, which would be in the denial letter, I cannot give you any more information.

ScottGem · Oct 7, 2007, 01:52 AM

I'm assuming the contract was contingent on obtaining financing which is why this became an issue. You need to check that, because iof they signed the contract AFTER getting a loan commitment, it might not have been. If it wasn't, then the loan denial has no bearing and they forfeit their down payment.

But what Diane is saying about loan commitments is accurate. I had a buyer pull something similar on me. They wanted to apply for NYS sponsored loan. But since the waiting period for that was longer, the contract was written that they would have to apply for a conventional loan as well. After a bit they informed us that they had received approval on the state loan. So we went ahead with the contract on the house were buying. We found out later that what they had received was not a commitment but just the first step in the process. The result being that the closing was postponed which almost caused me to lose the house I was buying.

mellon977 · Oct 7, 2007, 05:28 PM

Diane,
Thank you very much for confirming the information... also, here is more information: They commitment letter was given and evident when this couple had deposited $11,000 at the time that they signed the contract. The rest of the down payment was suppose to have been seen at the time of closing.
This couple's reason for backing out as mentioned by their agent and lawyer was because they decided to buy ANOTHER house.
This whole deal was signed off close to one month and a half ago. Apparently, the initial time they asked their mortgage company for a denial letter on the loan to buy our house, the mortgage company said they couldn't do it. The best thing they offered was a different payment arrangement (perhaps lower rate?) but they were not going to generate a denial letter. Two weeks later (i.e. over a week ago), the had a denial letter!

They don't seem to have any financial distress and a statement that the gentleman said to his lawyer at the time he mentioned backing out of the contract was,"what if I died tomorrow...then I'm not obligated to buy the house." His lawyer said that his family will suffer regardless...
So, what that being said... do you think there could be other reasons to validate a denial letter? Thank you so much for taking your time to read this.