Ask the Brokers – Two Months Late and a Funding Short

Kristn.jpg 

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!

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