No Closing Due to Lender Error

The Parents Agreed to Help with the Mortgage

This young family and their two children needed a larger home. They sold their home and talked to their mortgage agent. The agent informed them that on buying the home they wanted, their income was a bit shy to qualify. Based on the mortgage agent’s suggestion, the wife’s parents agreed to help. So the Agreement of Purchase and Sale included the wife and her parents as buyers.

But Lender Wanted Parents Removed from the Offer

The purchase agreement was subject to a satisfactory home inspection and obtaining a mortgage. The home inspection passed and the mortgage lender approved the mortgage. As the lender determined that mortgage approval did not require the parents, they asked for and the parties agreed to amend the agreement, removing the parents and leaving the wife as the sole buyer.

Then Lender Wanted to Include the Parents

Both the sale and the purchase were scheduled to close on the same day. Yet three days prior to closing, the buyer’s lawyer informed all parties that he hadn’t received funds from the lender to close the purchase. Through some human error in the lender’s approval, the lender now wanted the parents to again be included in the offer to purchase by way of another amendment. The sellers, concerned that a closing might not occur would only agree to amend the offer again if the buyer submitted a sizeable, additional deposit.

No Closing Caused a Breach of Contract

The buyers could not come up with the additional deposit. All of their money was in the equity they’d receive once the sale of their existing home closed. So on the completion date the buyer’s sale closed but not the purchase, as the lawyer still had no funds from the lender. This dilemma unintentionally placed the buyer in breach of contract. She and her family now stayed in a motel room, still hoping to close.

Mortgage Finally Approved Past Closing

Within three days of closing the lender notified the buyer’s lawyer that the mortgage was approved and that mortgage instructions would follow. The lawyer would then prepare the documentation and send it to the lender for approval before money would be advanced. This typically takes about four business days. But because the closing came and went, the seller now wanted a penalty in addition to the increased deposit. This soured and alienated the buyer who now decided to walk away and buy another home.

Mistakes, Distrust and No Deal

Mistakes with lenders sometimes happen through no fault of the buyer. The distrustful sellers made further demands that would cost the buyers more money. The buyer reacted with equal distrust and risked walking away from the deal. The matter was very unfortunate as the problem was resolvable.

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