On Monday we heard from a Buyer's Agent that his Buyer was cancelling the contract based on an "Unfulfilled Loan Contingency". This happens from time to time - but it's always important to carefully review the loan denial from the lender - and to dig deeper if it appears the original "pre-approval" should never have been issued.
Based on further discussion with the lender and the explanation they provided for the loan denial, I drafted the following letter to the Title & Escrow company for my Seller's signature:
In reference to the previous correspondence regarding the LSR and subsequent loan denial, I draw your attention to the following statement made by the Buyer's Lender.
"In addition, we were using $600 a month income from rent received by the applicant's mother and we needed to document that this rent had been received in the past. After it appeared unlikely that we would receive this documentation, we sent out our declination letter."
In plain English this means the Buyer made statements to the Lender regarding their income that they were unable to prove, essentially obtaining the LSR under false pretences. Had the Lender been provided with accurate information by the Buyer initially, the LSR would not have been forthcoming, would not have been available to submit with a purchase offer, and we would not have entered into contract. The result of this "invalid" LSR was to take my property off the market, and therefore incurring additional expenses for continuing to carry the property while waiting for close of escrow.
Given that all parties to the contract are required to act in good faith, and given the fact that the LSR was not obtained in good faith as the Buyer was unable or unwilling to substantiate the statements made to the lender at the time the Buyer obtained the LSR, I ask that you immediately release the earnest money to me (Seller) as liquidated damages, thereby releasing both parties from this contract. Failing that, I ask that you continue to hold the earnest money while I explore the various litigation options open to me.
The Buyer of course wanted the entire amount refunded to them - however - Title & Escrow wisely chose the following path:
I followed up with a call to the Buyer's Agent encouraging him to have his Buyer put a proposal in writing for me 
to present to the Seller. I mentioned that the Seller is extremely busy, and would likely choose to drop this matter in the lap of the District Attorney's office for investigation as to whether there had been an attempt at mortgage fraud - unfortunately all too common these days.
Within hours we had a proposal from the Buyer in writing which the Seller accepted, resulting in the following Supplemental Escrow Instruction:
Seller and Buyer agree and instruct Escrow Agent that the Earnest Money Deposit is to be disbursed 50% to the Seller and 50% to the Buyer.
Both Buyer and Seller signed the instruction and the deed was done.
What lessons do we learn from this?
If you are a Buyer - don't fib to your lender! It can cost you not only the deal, but some - if not all - of your Earnest Money - and you put yourself in position for possible criminal charges!
If you are a Buyer's Agent - do everything you can to make sure the Lender documentation is based on fact - not fiction.
If you are a Listing Agent - if you receive a cancellation due to an "Unfulfilled Loan Contingency" - protect your Seller by doing the "due diligence" to find out if the situation is valid - or a result of "fibbing".
If you are a Seller - make sure you work with a Listing Broker who includes this level of commitment to their client in the service they provide to you. Absent the extra digging around in this case - the Seller would have Zero of the Earnest Money - it would all have been returned to the Buyer.
The best news for the Seller followed the next day - with the property going back under contract!
If you are considering selling a home or real estate in the Phoenix area you owe it to yourself to talk with Haven Express at Keller Williams Realty Professional Partners to determine whether Tony Marriott is the best real estate Broker in the Phoenix and Scottsdale metropolitan area to help you with the sale of your home!
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