Losing Fees Paid For Services When A Loan Does Not Close

January 6th, 2016

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Every now and again a loan does not make it to closing. Common reasons for this are home inspection issues that cannot be resolved or a condo that cannot be approved. Unfortunately, some of these issues arise and cause a deal to cancel after some services have already been performed and therefore have to be paid for, and this is where debate will sometimes arise.

Sometimes a client will be surprised that they are responsible for paying any fees at all when an attempted home purchase fails. After all, they have done nothing wrong, they moved forward with due diligence and good faith. Why should they have to pay for anything? But most times homebuyers understand there are some sunk costs when attempting to buy a home.

I saw a post in the Zillow mortgage forum where a potential homebuyer felt the lender should have known a condo he was trying to buy was not able to be approved as soon as possible, and felt the lender should refund his appraisal fee for not knowing this before the appraisal was completed. Some realtors responded on this forum that they felt the lender should reimburse the potential homebuyer’s appraisal fee.

To say the news about problems with a condo should have been uncovered early is simply being unaware of the entire process, and not knowing in what order things take place. There are a lot of moving parts as to the order of a loan process and how fast a loan goes. For example:

How fast did the consumer apply from the date of contract ratification?

How fast did the consumer sign their loan disclosures?

How fast did the consumer provide all of their supporting documents?

Most importantly, how fast did the property manager respond to the lender’s request for the condo information?

Once the condo questionnaire, budget and any other related condo documents the lender uses to make a determination on the condo approval are received, then and only then should the lender be able to make a decision on the condo approval.

If the lender had the condo documents back for a long time and did not notice that condo had some things going on that would preclude it from getting condo approval then let the appraisal get turned in, and then let the loan or condo get rejected and let the consumer get charged for the appraisal; then that is another story and the lender should be held responsible.

It sounds like to me, however, that in these cases where an appraisal is completed before the condo documents are received the consumer is dealing with an excellent lender who moves quickly, gets the appraiser out to the subject property as soon as possible to meet the demands of the sales contract, and keeps the process moving. The same realtors who would say the lender is at fault and should give you your money back would be screaming if the appraisal was not done within the contractually required time periods.

You can’t have it both ways. Either work with an efficient lender who keeps you contractually compliant and wants to get you to the settlement table on time or work with someone who moves slowly and puts you at contractual risk of being in breach of contract, but maybe allows you to save a little bit of money on the appraisal if the deal does not work out.

Even had if the lender received all the condo documents and condo questionnaire back from the property manager early before the appraisal was completed, by that time usually the appraiser will have at least been out to inspect the property, and if you cancel an appraisal order after the property has been inspected but before the appraisal itself is completed, you’re still going to pay the bulk of the appraisal fee to cover the physical inspection of the property. The last time I canceled an appraisal after the appraiser had already been out to the home they still charged $275 out of a $400 fee, and I only saved the client $125 by canceling the appraisal early after uncovering a condo problem.

If you are not willing to risk some money when buying a home then you need to pay to have the condo questionnaire and all the condo documents delivered before you write an offer, and that costs anywhere from $100-$250 to get all of that for most condos, so you’re still putting money at risk. In many business transactions you’re going to have to put a little money at risk to do some things to do your due diligence to vet the deal. It’s just the nature of business.

It is not common for a seller or listing agent to vet his or her own condo listing when listing it for sale. I think they should, but what I think and what the marketplace does are often not in agreement.

I just did a condo loan where the listing agent lived in the building, had a listing in the building, and had no idea there was litigation against the condo! And litigation is a problem when getting a loan. Turns out the lawsuit was a nuisance suit, and we approved the loan, but the buyer could have lost appraisal fees, condo questionnaire fees, and home inspection fees had we not been able to do the loan. So who would have been at fault in this case? The seller? The listing agent? We as the lender? The buyer agent? The answer is none of the above. I think the moral of the story is that if you want to avoid wasting money, then a condo buyer has to do as much homework as possible and ask a lot of questions and maybe even pay to get a condo questionnaire done in advance of making an offer.

In San Francisco a realtor told me that you cannot have any contingencies if you want your offer accepted, none at all. So what is a condo buyer to do? If you are going to waive your financing contingency, you better know the condo is warrantable. The buyer agent my buyers worked with was amazing, and did a lot of research on each condo the buyers looked at before making an offer. We basically warranted each condo before they even wrote an offer. It’s possible to do and maybe that is what each buyer needs to do on condos to avoid wasting time and money? It would be nice if listing agents did this leg work each time so the pool of buyers knew what the deal was, and maybe someday realtors will get to that point.

Bottom line for any homebuyer is that if you are that focused on saving money do the advance homework through your realtor or lender on a condo before writing an offer.

Brian Martucci is a loan officer for Capital Bank Mortgage, a division of Capital Bank. He has been in the mortgage industry since 1986 and has served in a number of roles, including loan processor, loan officer, mortgage broker, branch manager, and vice president. Brian Martucci – NMLS# 185421. His opinions do not necessarily reflect the opinions and beliefs of Capital Bank Mortgage or Capital Bank. Capital Bank, N.A.- NMLS# 401599. Click here for the Capital Bank, N.A. “Privacy Policy”.

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