What can you do if your lender backs out of the mortgage commitment? A lot of buyers might want to sue the lender because it is difficult to close if, at the last minute, you’re scrambling to find a new lender. There are advantages to working with recommended lenders (such as in incentives other lenders might not have), but you have to make sure you are working with a well-known and reputable lender.
Q: My lender backed out of my mortgage. Should I pursue a lawsuit against the builder because the builder recommended the lender? The lender backed out of the mortgage commitment three days prior to closing, so I couldn’t close and the builder decided to keep my earnest deposit. I didn’t default in any way and still don’t understand why the mortgage lender backed out of the deal.
A: Our first question to you would be on figuring out why the lender backed out of giving you a mortgage. It’s not unusual for developers and builders to find and work with particular lenders on their projects. These lenders generally will know the ins and outs of the development and have a better handle on the underwriting issues involved.
There are always pluses and minuses to using a lender recommended by your developer/builder/seller. One disadvantage in using a seller recommended lender is that the lender may give you an above market deal for your loan. The lender may not have your best interests at heart in giving you the loan. The lender may not be the best lender out there for the loan you are looking for.
The advantage of using the recommended lender may be that the lender may have incentives to give you that other lenders may not have. The lender should have all the information it needs about the developer and the development to give you the loan. The lender may have given the developer the construction loan financing and may have an incentive to make sure that the development is successful by vetting prospective buyers and giving those buyers loans to purchase homes in the seller’s development.
There are so many factors that a buyer should consider in deciding whether to use the “preferred” lender in a development. From our perspective, the important thing is to make sure you are working with a well-known reputable lender.
We have seen lenders deny loans to buyers in your situation. When that has happened, it’s generally been a credit issue that prevented the lender from giving the borrower/buyer the loan. Now, if the lender could not give you the loan due to an issue caused by the lender, you’ll have to look at your contract to determine what your remedies might be.
You’ve told us that the lender backed out and we wonder if the lender backed out of your loan or doing any loans for this developer. If the lender backed out of handling loans with this developer due to something the lender found out, you’ll need to find out what those issues are and then decide how to proceed.
It seems that you probably didn’t use a real estate attorney to represent you. Do you know if your contract had a provision that allowed you to terminate the contract in case you were unable to get financing for the purchase of your home? If so, did you notify the seller of your inability to get financing during the time limits set in the contract? By following the terms of your contract, you could protect yourself and assure the return of your earnest money in case your lender failed to give you financing.
Now that you are in a bind, you should talk to a good real estate attorney in your area to decide how to go forward.
Ilyce Glink is the Publisher of ThinkGlink.com. Sam Tamkin is a Chicago-based real estate attorney.