I was preapproved on a $6K down payment on a home so I went ahead and proceeded with ratified contract with a seller. There were snags in the finalization process (IRS transcripts didn't come in on time), so we waited for it. Once the documents arrived, the broker reviewed my files, they saw that my credit score has gone down, so now they're wanting 5% down to proceed with the loan. When I declined to put 5% down(since I don't have the funds), broker said he can't write me a loan denial letter because I was "approved" and I just needed to put 5% down. I told them I can't because I don't have the funds but he insisted and said that I DO have the funds when they saw my Thrift Savings Plan(TSP)Account had enough to withdraw from for the down payment. (by the way, in order for me to get money from my TSP is to get it as a "loan" and not a "withdrawal"). Without the denial letter, I'm still bound to the contract with the seller, which I'm afraid may lead to legal issues. What should I do?
Response: Preapproval does not mean to “firm mortgage commitment.” If you cannot come up with the revised downpayment, the lender cannot issue a firm mortgage commitment and the loan must be denied. The loan office must then issue a denial notice to you.
The firm mortgage commitment is what is binding on you. If the lender has not issued it, then your loan was NEVER "approved" in the first place. What you should know is that preapproval means absolutely nothing because preapproval is done with little or not documentation. When the lender issues a mortgage commitment, it means that lender has thoroughly reviewed your loan application and supporting documentation and thus has committed to financing the transaction. If there is no firm mortgage commitment, then there is no financing, there is no approval. So, if the lender refuses to issue a formal denial letter because you cannot meet the new downpayment, you may get a local real estate litigation Attorney to sue the lender for any earnest money deposit you may lose as the result.
Nonetheless, if the deadline for your mortgage contingency has not passed, then you or your Real Estate Agent should send a written notice of withdrawal from the transaction to the Seller or Seller's Agent because of lack of mortgage commitment, lack of financing and ask for the return of your earnest money deposit. You or your Real Estate Agent needs to do this in writing. Otherwise, the notice is not binding on the Seller because of Statute of Frauds, which requires that any transaction regarding real estate to be in writing in order to be enforceable.
Thank you for the response. How do I know (will it state somewhere) that I signed a firm mortgage commitment?
Also, when you say "deadline for your mortgage contingency", does that mean the extension deadline? (The original settlement date was April 30 but was extended to Aug 1 due to the delay in processing).
I am sorry for the delay in getting back to you. I was away from my computer when replied:
Thank you for the response. How do I know (will it state somewhere) that I signed a firm mortgage commitment?
Response 1: This is a document that must be sent to you by the lender BEFORE you can do the closing. This notice must be given to you by the lender within the deadline for your mortgage contingency. The mortgage contingency provision is a provision in your Purchase and Sale Agreement regarding mortgage financing and the deadline for obtaining it. The provision would specifically state when you supposed to apply for loan and when you supposed to receive a firm mortgage commitment to lend from the lender. If you cannot meet this deadline, which is very common because of the delay on the lender's side, your representative, the Real Estate Agent or Attorney must contact the Seller's Agent for extension of the mortgage commitment date. If the Seller refuses to give extension, then your Agent must send a notice of termination of the Purchase and Sale Agreement due to lack of financing to the Seller/Seller's Agent in order for you to receive your earnest money deposit back. This extension of time for the mortgage commitment/mortgage contingency is different from the extension of the time for performance, which is the extension of the closing date.
Response 2: No. It is deadline for you to obtain a loan from the lender, a deadline for receiving the mortgage commitment letter from the lender. Again, do not let the loan officer confuse you. Your loan WAS NEVER APPROVED WHEN YOU RECEIVED A PREAPPROVAL. Preapproval is just that. Unless you receive firm mortgage commitment letter from the loan officer, your loan was not approved and has not been approved. If you know that you would not t get the commitment letter by the deadline, you need to immediately inform the Seller on or before the deadline to cancel the transaction and get your earnest money deposit back. Your purchase is contingent upon you receiving mortgage commitment from the lender. If you do not get this commitment, that means that your loan has not been approved and thus you do not have any financing for your purchase.
Sorry for the delayed response. All this is new to me, so I had to read and reread your answer to comprehend and digest all this.
And as I read your replies, I've been looking for the same key words you mentioned, in the ratified contract(regional sales contract) and the broker's documents that I signed and sent back to them.
I only found the VA Financing Contigency Addendum(since I'm using VA loan to apply). And it says on there that if the contingency has not been satisfied by the "Financing Deadline", then it will continue up to the Settlement Date(which was extended to Aug 1).
So can I still walk away from the lender since they gave me an approval (w/ condition) and can not meet one of the conditions? Can they legally hold it against me if I do not want to use my TSP to pay for the down payment, and therefore refuse to issue me the denial letter?
What if the seller doesn't honor/accept the letter/notice of withdrawal without the denial letter? What do I do next? And with this, they also refuse to give me my earnest money back? What then?
Response 1: There is no need for an apology. I am here to assist any way that I can.
So can I still walk away from the lender since they gave me an approval (w/ condition) and can not meet one of the conditions?
Response 2: Yes, you can. You should at this time tell the lender that since the downpayment has been increased that you can no longer afford the property. Your whole purchase was based on your contributing only $6k downpayment to the purchase. The loan officer must tell the underwriting department that you cannot satisfy the condition for approval and that the underwriting department must now stop processing your loan. You must be given a denial letter by the loan officer at this point and this letter must be issued on or before the deadline for financing/mortgage contingency.
Can they legally hold it against me if I do not want to use my TSP to pay for the down payment, and therefore refuse to issue me the denial letter?
Response 3: No, they cannot. Your TSP is for your retirement and not for purchase of a home. So, you cannot be legally required to pay the downpayment from your TSP.
What if the seller doesn't honor/accept the letter/notice of withdrawal without the denial letter?
Response 4: Then the Seller would retain your earnest money deposit and you would then have to sue the loan officer for this loss or you can sue the Seller to force the return.
What do I do next?
Response 5: Hire a real estate litigation Attorney to sue the loan officer or the Seller. You can use the following sites to find local Attorneys:
And with this, they also refuse to give me my earnest money back? What then?
Response 6: The Seller HAS NO LEGAL RIGHT WHATSOEVER to withhold your earnest money deposit if you have produced a copy of the denial letter from the lender. Your loan is contingent on financing and if there is no financing, the purchase cannot go through and the Seller cannot force you to purchase the property.. You must then sue the Seller for the return of your earnest money deposit and request that the Court order the Seller to pay for your Court costs including your Attorney's fees.
Thank you so much for the information you've given me. By the way, is there a limit to this thread or can I continue to ask until I get all the info I need (I only have a few more questions left)?
If I still want to pursue the house, do I have the option to walk away from the broker/lender? Aside from the home appraisal fee, will I be required to pay additional fees (filing, etc)?
If/When I find another broker/lender, will I have to do anything in conjunction with broker/lender #1 (disclose to him what happened). Can broker #2 ask for the files/case from broker #1 to include the home appraisal report?
Will I have to do it in writing when I ask the lender/broker to stop processing my loan and ask for the denial letter? Will I also have to do it in writing when I notify the seller to cancel the purchase transaction and ask for my earnest money back?
Or will it be easier/quicker to just hire an Attorney and let him do those?
Can I also sue the lender for coercing/forcing me into paying for the down payment using my TSP? I just feel violated that I'm being told to give up my life/retirement savings just to satisfy their demands.
Response 1: You can continue to ask until you get the information that you need.
If I still want to pursue the house, do I have the option to walk away from the broker/lender?
Response 2: Yes, you can. You are not required by any law to stay with a particular lender if you do not like the lender's practices.
Aside from the home appraisal fee, will I be required to pay additional fees (filing, etc)?
Response 3: The bank may have already charged you for the application fee or may ask you to pay it. If you refuse, there is really nothing the bank can do to you if you are no longer getting the loan from the bank. Also, if you have already done home inspection, you would be responsible for paying the inspector for his/her services.
If/When I find another broker/lender, will I have to do anything in conjunction with broker/lender #1 (disclose to him what happened).
Response 4: You do not have to, but may have to tell your new broker about the appraisal. The new broker may take the previous appraisal and in so doing would save you additional fee.
Can broker #2 ask for the files/case from broker #1 to include the home appraisal report?
Response 5: No. The files belong to the first lender and the lender does not have any legal obligation to release the files to a new lender. However, if you have paid for the appraisal report, you are entitled to a copy of the report. So, broker #1 has to provide that information to you if you have not received a copy of the report. If you have received a copy of the report, you can just e-mail it to broker #2.
Will I have to do it in writing when I ask the lender/broker to stop processing my loan and ask for the denial letter?
Response 6: Absolutely, to protect yourself and for record purposes. E-mail qualifies as writing. So, you can e-mail the broker especially if you have been communicating with the broker by e-mail.
Will I also have to do it in writing when I notify the seller to cancel the purchase transaction and ask for my earnest money back?
Response 7: Yes. You have to make sure to follow the procedures outlined in your Purchase and Sale Agreement for giving notices. If e-mail or fax notices are accepted, then you can send the notice by e-mail or fax.
Response 8: There is no need for an Attorney at this time.
Response 9: No, you cannot it. The broker can ask you to get the money from your TSP, but you are not required to. You can just say NO just as you are doing now.
For question/response #9....Broker said that he can't give me the denial letter because "you have the funds in your TSP but just don't want to use it". Is that really grounds for denying me the denial letter?
For response #8... There's no need to hire an Attorney unless the lender refuses to give me the denial letter right? Or if the seller refuses to return my earnest money back?
Ok, unless you advise otherwise, I will simply reply to the same email thread where they said they'll "proceed with your loan and closing subject to receipt and review of the following items: -Down payment on purchase of home to be 5%. So loan amount will be $548,150 plus funding fee."
Can you help me compose a reply to that asking for the denial letter? Or are you allowed to compose it for me?
I don't see it on this website but for future reference, is there any way that I can scan and send documents for you experts to review and provide legal counsel before I proceed with whatever transaction I may do?
Response 1: No, it is not.
Response 2: Yes, that is correct.
Response 3: Just for the record, we do not give legal advice here. We provide general legal information based on the information provided by site users. Nonetheless, you can simply reply to the e-mail from the broker.
Response 4: The answer to both questions is NO. I am not allowed by the terms of service to provide legal advice here. Composing a letter for you would be providing legal advice.
Response 5: We do not provide document review. That would amount to giving legal advice, which, are prohibited from doing by the terms of service of this site.
I now request that you rate one of my answers. That is the only way that I get credit for assisting you.
Thank you for your cooperation.
Thank you so much for all your assistance! I'll definitely recommend you to other users.
DISCLAIMER: Answers from Experts on JustAnswer are not substitutes for the advice of an attorney. JustAnswer is a public forum and questions and responses are not private or confidential or protected by the attorney-client privilege. The Expert above is not your attorney, and the response above is not legal advice. You should not read this response to propose specific action or address specific circumstances, but only to give you a sense of general principles of law that might affect the situation you describe. Application of these general principles to particular circumstances must be done by a lawyer who has spoken with you in confidence, learned all relevant information, and explored various options. Before acting on these general principles, you should hire a lawyer licensed to practice law in the jurisdiction to which your question pertains.
The responses above are from individual Experts, not JustAnswer. The site and services are provided “as is”. To view the verified credential of an Expert, click on the “Verified” symbol in the Expert’s profile. This site is not for emergency questions which should be directed immediately by telephone or in-person to qualified professionals. Please carefully read the Terms of Service (last updated February 8, 2012).