Slow Lenders

In our purchase agreement for our newly-constructed home, the agreement states that mortgage approval is due thirty days from the mortgage application date.
 

We now want to terminate the contract with the builder because their associated mortgage company has been too slow. The mortgage company did not even get the Good Faith Estimate form to us until a month after we applied. Weren't they supposed to get the Good Faith Estimate to us within three days of applying for the loan?

We want to get our earnest money back and also the application fee we gave the lender. What recourse do we have against the mortgage lender for being so slow and can we get our money back from them? Can I cancel the agreement of sale based on the fact that our approval wasn't received within the thirty day time period?

A: While the mortgage broker and your builder may have some arrangement to assist buyers in the purchase of homes in the builder's development, you effectively have two issues to deal with.

The first issue is whether you can cancel the contract with the builder. The first thing you need to do is look at the contract and determine whether you have the right to terminate the contract if you don't get financing by a certain date. Then you must determine what you need to do to terminate the contract. If the contract gives you this termination right, you need to follow the terms to get out of the deal.

If you had the right to terminate the contact and followed the terms of the contract to terminate it, your deal should be dead. If you failed to follow the terms of the contract, the contract - as many contracts state - may dictate that you have waived the right to terminate the contract even if you didn't get financing.

Just because you didn't get the approval for your loan within the thirty days may not be enough to kill the deal. Most contracts would require you to give the sellers written notice that you didn't get financing and tell them that you are terminating the deal.

If you satisfied the terms of the contract and terminated the contract or you didn't terminate the contract and don't want to use this mortgage broker, the second issue is getting your money back from the mortgage broker.

The Department of Housing and Urban Development (HUD) passed a law many years ago that regulates residential loan transactions. This law is commonly referred to as RESPA (the Real Estate and Settlement Procedures Act). RESPA specifically states that upon application for a loan the mortgage broker must give the borrower a Good Faith Estimate of the closing costs for the transaction at the time of application or within three business days of the application. Unfortunately, some lenders fail to abide by this requirement.

You can make a request of the lender to refund you the fees you have paid and indicate to them that they have failed to deliver documents in accordance with RESPA. If they fail to honor your request, you can file a complaint against the mortgage broker with the office that regulates mortgage brokers in the state in which you live and with the attorney general and even with HUD. You can get more information on RESPA and answers to many questions from the HUD website at www.HUD.gov.

Finally, if you proceed with the purchase, you should shop around with various lenders to get the best terms you can for the purchase of the home. You did not indicate why you don't want to buy the home and if your reason is solely due to the mortgage broker's response, you may well want to shop around and get yourself approved.

Samuel J. Tamkin is a Chicago-based real estate attorney. Ilyce R. Glink’s latest book is 50 Simple Steps You Can Take To Sell Your Home Faster and For More Money In Any Market. If you have questions for them, write: Real Estate Matters Syndicate, PO Box 366, Glencoe, IL 60022 or contact them through Ilyce’s website www.thinkglink.com