This is a follow-up post to one I did a few days ago. You can see it with this link:
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I have heard of this scenario playing out before, this time I have first-hand knowledge of it. For the purpose of this discussion, I'll call the lender Hase Bank.
In my opinion, the bank behaved in a totally disingenuous manner toward the buyers (long time soon-to-be-ex,) customers of Hase Bank. Hase did, of course, meet all the required disclosures in processing the loan application but meeting the disclosure requirements and the buyer understanding fully what they mean and the implications are a different story. In fact, telling the buyer that the only way that Hase Bank will lend is with a Fannie/Freddie approved loan and the likelihood of that happening are, well, nil. Read on.
This was the purchase of a condo as a second home. The buyers are fully qualified for the 20% down loan they sought. My experience and the lenders I work with tells us that 30% down is just about the only way to finance the purchase. The buyer, with this information in hand, went to Hase bank and asked will you finance the purchase? The answer was yes, of course. I cautioned the buyer to stay on top of the lender all the way. Let the games begin...
Hase Bank, wanting to accept virtually no risk with regard to this loan, fully intended to do a Fannie/Freddie approval. Cringe...the Fannie/Freddie (F/F) requirements for condo loans as second homes are strict with regard to the condo budget, reserves...etc. There are no condos that I'm aware of that meet the requirements. I'm sure there are some.
In order for Hase Bank to make a loan they can sell to F/F they now need to do a "full condo review." The buyer doesn't understand that this means the loan is all but dead and Hase bank has the Buyer pay $150 to the management company for more documents - the condo questionnaire.
What's so disingenuous is that application for the mortgage was made weeks ago and the condo questionnaire was only asked for less than one week from closing well after Hase Bank already issued a "mortgage commitment." These are not worth the paper they are written on. Now you will begin to understand the referenced post above. Hase knew full well that this loan is all but dead, the buyers did not.
Hase bank determined 72 hours before closing that the condo was not acceptable and requested a waiver from underwriting...24 hours before closing, waiver denied. Mr/Mrs Buyer, 'We're very sorry. We understand that you already have incurred $1,000 - $2,000 in out-of-pocket unrecoverable expenses but there is nothing we can do.' Or something to that effect.
Now the buyer thinks there could be something wrong with the condo project. While this could be true, it is not. A nearly ten year old project, fully built-out, and thriving in an upscale golf course community. The only thing wrong is Hase bank profiting from their application and other related fees and leading the buyer down the primrose path. I find this not only disingenuous but reprehensible. "The Banks" owe their customers better treatment than this. But it's clear they represent themselves and look out for the interest of themselves, only.
Buyer beware, seek out as much information as you can and make fully informed decisions.
My advice to the buyer as was repeated by their attorney was to not waive the financing contingency. Had they done so, they would be out more more than a couple of thousand dollars. Alternatively, a special form of financing contingency where failure to close through no fault of the buyer but rather the lender is a get out of jail free card.
What would have happened if this was a primary residence purchase? Think about it, the house all packed up maybe even on a moving van, your present property is sold, and now you have nothing but heart ache and nowhere to live. Yes, the lending requirements would have been a bit different but...read all the "subject to this and that..." at the bottom of the mortgage commitment. Remember what I said about the paper it's written on.
You may also find this related post interesting:
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