Honesty Is Always The Best Policy

Recently I received an offer from a buyer’s agent for a property in need of more than a little TLC. The sellers were selling the property as-is, and it was priced accordingly. Enter the buyers. One lives out of town due to work, while the other planned to make Fairbanks his home. The buyers apply and are approved via desktop underwriting with a reputable local lender. The only conditions required to close was a satisfactory appraisal and clear title. Just the way I like it.

I just found out the buyers have lost their funding. As it turns out the buyer, the one who was not planning to make a move to Fairbanks, at least prior to closing, quit her job. Lenders typically like to know borrowers can repay the loan. Not having a job could make that a little more difficult. Go figure.

I was surprised when I received the letter, but it does happen from time to time. Buyers have been known to buy a new car or furniture without realizing it could negatively affect their loan. As soon as I saw the letter come through I called the loan officer. She said the VOE came back that the buyer no longer worked with her company.

The buyers are now requesting a refund of their $6,000 earnest money deposit. We've said no. Our purchase agreements stipulate that buyers will be entitled to a refund of their earnest money if their loan is denied within 30 days of acceptance. However, to be eligible the buyers must have applied in good faith and not materially misstated or misrepresented any information.

When I spoke with the buyers employer (yes, I called HR) they confirmed that the buyer voluntarily resigned. She was not fired or furloughed... she quit. According to the HR rep, she resigned 3 days after the purchase agreement was ratified.

Not only are buyers about to lose $6,000 but the seller has spent almost $7,800 in repairs to accommodate the buyers and they may be on the hook for that as well.

A standard residential loan application contains verbiage that says the buyers certify "the information is correct and acknowledge that intentional or negligent misrepresentation of any information may result in civil liability and/or criminal penalties and liability for monetary damages to lenders, it's agents, insurers and any other person who may suffer a loss..."

According to legal counsel, "any other person" includes the seller, who spent a considerable amount of money for repairs they otherwise wouldn't have made.

The moral of the story... do not, under any circumstances, misrepresent any information on your loan application or mislead the lender with respect to, well, anything. If you do and someone is damaged, expect serious ramifications. Just like your mother used to say... honesty is always the best policy.