I received this question today:
I was told I had loan approval. The broker then opened escrow. Escrow should have closed 8/27/07. As of this date, I have no funding and escrow has not close. Am I entitled to receive my deposit and appraisal back?
I am afraid I have more questions than answers, and I hope you will help me out through your comments (under an alias, if you wish).
1. “I was told I have loan approval. The broker then opened escrow…”
Loan approval is always subject to conditions, so my first question is, were there conditions that you were unable to meet? Was your “approval” a prequalification or a preapproval, or did you indeed get subsequent underwriting approval subject to final funding conditions? Regarding prequalification and preapproval, there is a difference. A prequalification typically consists of a short conversation with the lender or mortgage broker. “What do you make? What do you owe?” Based on unconfirmed representations, the lender or mortgage broker will make a determination that you are, in theory, qualified to make the purchase. On the other hand, a preapproval typically involves actual completion of a loan application, verification of assets, and a credit check. While not a final commitment to make the loan, it is clearly more thorough.
2. “Escrow should have closed 8/27/07. As of this date, I have no funding and escrow still has not closed.”
I can’t imagine why escrow is two months late in closing, but I clearly lack the information that you have. You say you have no funding. Funding occurs after full loan approval and after loan documents have been executed. Have you signed loan documents? What reasons are you being given for the extraordinary delay?
3. “Am I entitle to receive my deposit and appraisal back?”
Most lenders require the appraisal to be paid out of pocket by the buyer. You would have to take this issue up with the lender, but I highly doubt they would refund the appraisal cost. This is a cost of doing business paid to a third party for services rendered.
Regarding your deposit, this goes back to whether or not any of your contingencies of purchase are active. If you have waived all contingencies, particularly your loan contingency, then your deposit is at risk, since failure to close at this point would be a breach of contract. If, on the other hand, you have not removed these contingencies, you might be entitled to have your deposit returned upon cancellation.
Again, if you are willing to shed a little more light on your situation, that would be helpful. If there are any lender-types out there (Brian Brady?), I would appreciate your input.
It sounds like a mess all around, and the real travesty (I sense) is that no one is properly explaining the process or the reasons for the delay to you. I wish you the best of luck!
{ 3 comments… read them below or add one }
Mortgage Approvals
10.26.07 at 7:50 am
great post….a lot of ppl need to realize they cant just get their money back BECAUSE they want to????
Brian Brady
10.26.07 at 5:27 pm
Kris is correct. We typically offer three types of “approvals”:
1- a pre-qualification- that’s a letter that states “We think we can get you a loan, based upon what you told us”
2- a conditional loan approval- that letter states that an automated underwriting program has approved the loan application. The income, asset, and credit conditions were satisfied or defined, and the property conditions (appraisal, title and condo cert, if necessary) are outstanding. This is a preferred approval for a purchase transaction.
3- Final loan approval (impossible to get without property conditions satisfied).
Your Realtor should furnish you with a copy of the approval he/she submitted with the offer to determine what type of “approval” you had.
Your appraisal fee will most likely not be refundable.
See Kris’ comments for the deposit- if the financing contingency was waived, your deposit is probably not refundable. This matter should be addressed with the Realtor and loan adviser who encouraged you to remove that loan contingency without approval.
My guess is that you were victim of the liquidity crisis. It started Aug 2. I’ll bet you had an approval that slipped away in August due to cancellation of those loan programs. The loan adviser needs to buck up and tell you the truth if this is the case. There is NOTHING he/she can do about it.
Brian Brady
10.26.07 at 5:29 pm
I just re-read this article. Kris asks a great question, did you sign “final loan documents” and are just waiting for the lender to fund the loan?