Mortgage loan approvals can be confusing

October 22, 2013

Initially, contact your attorney to receive a professional opinion based on the contract signed with the seller. I suspect your attorney will say the lender is not responsible for the loss of your deposit, but I am unsure what his advice will be regarding the seller keeping your deposit.

Not much happensReader Question: We sold a home in August. We received a pre-approval letter from the buyer’s lender in September. With the buyers pre-approval, we purchased a home and put a $5,000 deposit down. The “old” home sale did not close as agreed because the lender dragged their feet investigating their financial standing. The “new” home was to close a few days later. Because it did not (we needed the money from our closing), the sellers claimed breach and cancelled the contract, keeping the $5,000 deposit. Is the lender responsible because of their pre-approval? We want to recover the deposit. We are both seniors on a fixed income. Not wealthy. Suggestions on recovering the deposit would be appreciated. Tom P.

Monty’s Answer: Hello Tom. Initially, contact your attorney to receive a professional opinion based on the contract signed with the seller. I suspect your attorney will say the lender is not responsible for the loss of your deposit, but I am unsure what his advice will be regarding the seller keeping your deposit.

The real estate agent is a candidate

Was there a real estate agent involved? If they wrote a contract that was not “subject to the closing of your current home,” a source of re-payment may be from the agent and the agent’s broker. There is a legal obligation to treat all parties fairly. A consumer may not be expected to know that a pre-approval letter is not a loan commitment, but a real estate agent should know.

If the transaction took place with no help from a real estate agent or attorney, unfortunately, there is no one else to accept the loss.

The second time around

If your buyer has a well-written “subject to financing” contingency and has a deposit on your home, keeping their earnest money may not be an option. If this transaction craters, is it possible to sell your old home for $5,000 more the next time? Real estate transactions “crater” all the time. The home will sell for more, or it will sell for less, but rarely the same as the last time. The market is bouncing back in many areas of the country and lenders are becoming bolder. It could be the “second time around” will produce better results.

The second – second time around

When your old home sells, try to repurchase the same home purchased earlier for $5,000 less than the first time. While it may no longer be on the market if it is, the seller may be having second thoughts about dumping a buyer so quickly if their motive to sell is firm and they have not been able to replace your offer.

A real estate transaction is a complex and volatile business process with many moving parts that can create havoc with the participants. The article titled “Home buying and selling contingencies” on DearMonty.com may help prevent a re-occurrence of another contingency incident on your next purchase.

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Reader Question: Monty, my house is in escrow, but the buyer is not signing off on all contingencies because of his loan situation. We have waited several days, but no guarantees yet. We sent a notice to perform and want the buyers to continue trying to get their loan. Can we put the house back from pending to active to get another buyer without canceling this deal? Deb C.

Monty’s Answer: Hello Deb. There are two issues to deal with here. In the contract with the buyer of your home, be careful not to breach the contract; play it out practically and legally. Do not accept another offer believing the current buyer cannot fund, only to get a call saying, “Lets close, we got the money.”  Be certain another offer is a secondary offer until there is a signed “cancellation and mutual release” form. This document extinguishes all claims in an offer to purchase.

The 800-plus MLS systems in America have different methods in listing a home under contract, but they are not a party to your contract.

In my MLS is the property would be listed as “pending.” This means that any offer written will be a secondary offer. Any new contract written is “subject to a priorly accepted offer.” The secondary offer becomes primary when the current accepted offer fails. Many real estate companies MLS policy is not to list property as pending until all contingencies are removed.

Your real estate agent can provide guidance on how the rules work in their MLS. It may not be possible to be “active” and “pending” at the same time.