Losing Fees Paid For Services When A Loan Does Not Close

January 6th, 2016


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 Home Loans, a division of Capital Bank, N.A. 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 Home Loans or Capital Bank. Capital Bank, N.A.- NMLS# 401599. Click here for the Capital Bank, N.A. “Privacy Policy”.

12 Responses to “Losing Fees Paid For Services When A Loan Does Not Close”

  1. Yves says:

    So if I switch lenders and the lender canceled the appraisal but appraiser already did an inspection who pays for that fee? The buyer or lender

  2. brianm says:

    The buyer is responsible for all fees for their application. If the appraisal was canceled but the appraiser is still collecting an inspection fee because they went to the house, the buyer is responsible to pay that fee.

  3. Silvia Fry says:

    In the same subject, I have a question. I was working with a lender to refinance a couple properties.I was pre-approved. I submitted all the require documents on time and we had a closing date schedule. A week before the closing, they deleted all my documents and went silent. After a few emails and phone calls, I finally received a letter in the mail saying it was denied. The COVID changed the requirements and now they finally told me that I needed a letter from my employer assuring them that my job is secure. I have 23 years with the same employer and the employer did send them a letter. Yet they again went silent. I gave up on the Refi with them, yet I would like my $625 reimbursed, fee I paid fir one of the properties to be appraised. I didn’t changed anything since the day I fill up the application. The the property was appraised higher than expected. My FICA score went up, and I did not incurred in any debt.,I feel that they changed their mind in light of the COVID, or someone jumped ahead and order the appraisal too soon. Therefore I feel entitled to be reimbursed fir the appraisal. Am I wrong to expect it? What resources do I have. Please shade me some light. It is not fair. Thank you very much. I remain…

  4. brianm says:

    If you start an application and the appraisal was done I’m afraid you have to pay for it. But what they do owe you is a detailed explanation of why the lan was rejected. If they haven’t given you that, it is owed to you. I would contact them back and ask to speak to the branch manager and ask for detailed reasons on why your loan was denied. Good luck.

  5. Galen says:

    Our situation, we made the “mistake” of paying the appraisal fee to the appraiser used through the lender via credit card during the initial process of securing the loan. Then the purchase deal fell through during the inspection period because the inspection uncovered a major electrical problem and the buyers refused to address it. We informed the lender to stop the appraisal as soon as we discovered the problem. Now we are being told it’s the full appraisal fee “once it hits the appraisers desk.” The appraisal was not completed to our knowledge. We understand we can dispute the charge with our credit card company, but we also don’t wish to damage our relationship with this otherwise favorable lender moving forward (though we won’t pay an appraiser in the future until after inspection). Do we have good ground to stand on if we push back against this issue in principle, and is it worth losing the lender over and start shopping lenders again? Thank you.

  6. brianm says:

    Hello Galen. I am afraid you likely do not have much choice but to pay for the appraisal in advance. The market seems to be such a sellers market everywhere that they write very short/tight timelines into the contract for the appraisal contingency, the financing contingency, and the closing date. This is not the fault of your lender, they were just trying to meet the timelines in the contract. And if you write your next contract with lengthy timelines to allow for ordering the appraisal “after” the inspection, your contract won’t be competitive and your offer not accepted.

    For example, if you think you can get a home inspection in 7 days, and then an appraisal in 15 days, and loan approval in 7 more days, and then closing in 7 more days; your offer would have a 22 day appraisal contingency, 29 day financing contingency, and a 36 day closing date. Those dates may not be acceptable to a seller. But if you can get a seller to accept longer contract timelines, then you may be able to wait until after the inspection to order the appraisal.

    Or do a pre-inspection, and inspect the home before your offer.

    Either way you go, you have no recourse for the appraisal fee, you have to pay it.

  7. Katt says:

    I would love some guidance. We just went through the entire process of attempting to purchase a home via a USDA loan. We did all the appraisals, documentation, credit approvals, etc. Our mortgage broker knew from day one that we were reliant on the USDA program to make our purchase of this property. Two days before signing he notified us that he ‘messed up’ and that the property didn’t meet the age requirement to be approved for the USDA loan. He was provided with the age of the home on day one when we asked him to review and send over the pre-approval letter to our realtor. This error meant we were out of pocket for inspections, appraisals, and a few other certificates required by the USDA loan for a property we never should have made an offer on. We had been working with this broker for 6 months and had no reason to not trust his expertise and knowledge of the loans he was selling.

    If the loan had fallen through because of some other issue with financing or an issue with the property, I would expect us to be out of that money…it’s part of the risk. However, this was a direct error on his part since we were 5 weeks into a loan that should have been flagged as not qualified on day one. So far he has informed us he can only refund the appraisal fee. Am I wrong in expecting we should be refunded for the certificates and inspections as well?

  8. brianm says:

    Hello Katt. This is probably more a matter of personal loan officer opinion. If it were me, I would refund all the fees, and be embarrassed that I made such a mistake, and apologize profusely. I think your expectations are not unrealistic. Contact the branch manager of the company that your loan officer works for and calmly explain the situation and tell them that you expect them to pay all fees and maybe the branch manager can do something extra. Good luck.

  9. Paul Santini says:

    I worked with an Amerisave lender who ran numbers for me. Said I wasn’t approved for a conventional loan. Then I was approved for FHA with PMI fee. He was being pushy saying I should lock the rate because interest rates were going to go up. He told me the appraisal was $450. I paid the fee with credit card. The next day I decided I didn’t want to pay the PMI. I spoke to a different company and was approved for a conventional loan with no PMI. The next day I notified Amerisave and he told me the appraisal fee was not refundable. The appraisal was never scheduled or performed. When I checked my credit card statement, I was charged $545. Is that legal and what are my options.

  10. brianm says:

    Hello Paul. If the appraiser never went to the property, they should not be charging you the fee. There were no services performed. If the loan officer says the appraisal fee is not refundable, ask to speak to a branch manager. I can’t imagine there is any justification for them to keep your appraisal fee. Worst case, contact your credit card company and ask them to reverse the charge, and explain that no appraisal was ever done.

  11. Michelle says:

    One week before closing on a townhouse, I got a call from my realtor that the property had a lien on it for $200,000. The LLC selling it to me bought it as a foreclosure due to HOA fees. Well, there was also a mortgage lien that was “unknown” on the property. The property then foreclosed again while I was under contract to buy it. I spent money on the appraisal, the inspection, and HOA fees. Is it possible to get those fees back from the seller? Or would I be able to put a lien on the property since it was not my fault that the seller didn’t have a clear title before putting it on the market?

  12. brianm says:

    Hello Michelle. You can contact a lawyer to see about the possiblity of getting the fees back from the seller, but the problem with that is the lawyer fees may be equal to or exceed the amount you’d get back. I’d approach the seller without a lawyer first and ask, as a point of professional ethics, reimbursing you for your fees. Good luck.

Leave a Reply