Lender Can't Sell Loan - says I owe money AFTER Closing

17 Replies

I'm in a tricky situation with my first deal.

I closed on an investment property in Georgia and about 10 days later the lender is saying that the deal violates a Fannie Mae guideline in that the cash back at closing exceeded 2% of the sales price.  Subsequently, I am required to send the balance back into escrow, which will be refunded to the seller.  They say I am liable because I signed a document saying that I would offer assistance if they decided to sell the loan.  If I do not, they would rescind the mortgage.  

I'm having a hard time believing I am liable for their mistake. Their reasoning would imply that they could unilaterally change the HUD for any reason if it helps them sell the loan.

The title attorney and broker haven't offered too much help to date other than to ask if the lender would eat the additional cost (they will not).  

Appreciate any perspective on this issue.  Who should be representing my best interests here?  Anyone recommend a good lawyer to assist in this matter?

Clearly their error and assistance means executing any document necessary, giving additional information and bringing any pre-paids current, not necessarily paying cash to bring them into compliance. How much is it? I'd say it was their matter to comply with their loan restrictions as you aren't expected to know what they are required to do, and the deal you agreed to was the amount you borrowed and were to receive as a cash out. Their blunder, not yours. You will, however, need to pay it or sue after they resend the loan and 10 days is a little late. In other words, even if a lender messes up, they can call the note, you'll need to defend it and costs may or may not go your way, you can be right and it could still cost you. Weigh the options, speak to an attorney, if you fight it, to count on using that lender again either. I'd rather tell them to hold the loan until the LTV cam into line, selling it later, that is if the lender was a bank. Otherwise, see your attorney or just get out the check book. ;)

Agreed, of course.  Any mortgage co., and I mean Any, should know the 2% cap for seller contribution for buyer closing costs on an investor FNMA.  "Offering assistance" is signing/executing missing doc.s, etc., not paying for their mistake.  By the way, what happened?  Did they fund the loan with 3% back, or with 2% and some other small seller paid fee had to be included in the calculation?  How much is it, and exactly how did it occur.  They can't "rescind" the loan.  It's funded, you signed, Elvis has left the building.  They would have to call the note/foreclose.

Wow. Thanks so much for the responses!

Bear with me as I'm learning terminology here.  My voice mail says that they would take the next course of action which would be "calling the mortgage note due" because they have a document signed stating that I would "help out if we need some documentation from you or some assistance selling the loan".

I believe what happened is that they did not classify it as an investment property somewhere in the process. They were about 12 hours late to closing and I'm from out of state so I had to make arrangements to stay another day also. They were rushing at the last minute. About 10 days after closing I received an email from the title company stating that they were contacted by the lender requesting they update the HUD and they are unable to sell the loan until I do.

The offer which was 191.5k with $5k back in closing meets 3% but not 2% (less lender credit).  The balance due is about $1300.  

Okay, it's still their problem, as long you indicated it was an investment property in your application/note/mortgage.  I'm guessing this occurs more than we know, so they'll just have to find someone else to sell it to.  You're not in default on your note, so calling that and foreclosing is likely a bluff.  Do talk to a RE attorney familiar with this though.

Unless you lied on the loan paperwork, you shouldn't be responsible for the cash (but yes are responsible to help them clear up any clerical errors, signatures, etc)

They funded the loan and now can't sell it,,I have been in a similar situation,,basically the lenders held the note for a few months to season it and then sold it...I don't know if that would work in your situation.

I would make sure you have always indicated it was an investment property,,if so I would tell them you would sign new papers, etc,,but they should be on the hook, unless they can offer you some special deal on the next loan (if your making one anytime soon)

Try to work it out with them, but I don't think your on the hook for the cash, they should have caught that early in the process, not 10 days later.

Hi Mary - thank you for the link. They are up there but have > 4 stars though not too many reviews. I won't out them here until the matter is resolved. But everywhere I looked had them very highly rated and they offered me by far the best rate, though I'm earning it now I suppose. 

I'll let everyone know how this develops. 

I can see this going both ways for the lender and for the borrower.  Certain details will start to matter.  It is not clear where the Subject Property is located so it is hard to comment on the state and therefore the process post acceleration.  In a judicial setting, the Mortgagee will have to provide reasons for the acceleration.  Power of Sale states make it hard to challenge such things.  As Andy points out above, you should look to your loan documents to ensure you have executed documents which claim the property as Investment not Primary or Secondary.

If the property is properly designated the lender does not have much to stand on.  If the documents are wrong and the documents claim the property as Primary, they can accelerate based on a fraud occupancy.  

If the designation is correct then I have a hard time seeing where they could justify the acceleration.  

It is also important to note, they will drag your through the mud in the process.  So, not sure if $1300 is worth a foreclosure ding on your credit.  Having an attorney defend you may also cost something close if not a couple more dollars than that.  

These types of errors do happen everyday in the lending business.  Loans that are supposed to be sent to the agencies that get rejected for all sorts of things.  The loans are called "Scratch & Dent" and there is a market for them but it is around 97% to 95% of loan balance opposed to the 105% they were about to make.  I would not worry too much about that detail or their pockets as much as I would be concerned with impact on your credit and wallet from fighting their request.  

Perhaps in another attempt to 'win', go back to the loan officer and tell him to cover it. There is a chance they simply have to or will do that no matter what.  Depends on the nature of the loan officer and company you made application with.  If through the entire process of the loan they did not correct, which it sounds like they did not, the amount of credit you can apply, they missed a pretty big and constant guideline.  That is there fault and you might be able to get them to just handle it if you make some type of claim that you had a better offer down the street with rate and you took their offer because of credit/cash back.  I think you get the idea.  

I would say, play poker a tiny bit, but don't get too silly.  You could be on the bad end of the stick inadvertently.  

I believe what happened is that they did not classify it as an investment property somewhere in the process.

Somewhere in that stack of paperwork for closing there were one or more documents that dealt with the purpose of the loan.  There may have been an occupancy statement that should have stated you did not intend to occupy the property.  There's also sometimes an "assignment of rents" document for investor loans.  Maybe something else, but there was almost certainly something in that package of documents about this topic.  What did that say?

That's going to matter because if you play hardball but closed this as an OO loan when it was really an investment property then they have a valid reason to call the loan.

I have had one lender come back to me after closing with issues selling the loan.  We ended up re-doing the loan paperwork complete.  IIRC I had to give them a tiny amount of cash, less than $100.  They covered all the other costs to get things corrected.

Hi Jon - thank you for the response.

The stack of paperwork does include an Assignment of Leases.

The Uniform Residential Loan Application has a checkmark in the box next to "Investment"

The Affidavit of Occupancy states that the property is "Investment Property:  Not owner occupied.  Purchased as an investment to be held or rented."

The only language they seem to be using is in the Addendum to HUD-1 Settlement Statement that states:

"Agreement to Correct Clerical Errors.  In the event of a mistake or clerical error in any of the documents or in any amounts paid or received at closing resulting therefrom, Seller and Borrower/Purchaser agree to promptly execute such documents as requested by closing attorney and to pay any amounts due to owing as a result of said errors ..."

And in the Compliance Agreement, "... if requested by the Lender ... to fully cooperate in adjusting for clerical errors, any and all loan closing documentation deemed necessary or desirable in the reasonable discretion of Lender to enable Lender to sell ...  said loan to any entity"

I don't really see how this is a clerical error since it is consistent with the contract.

If the loan isn't acceptable to Fannie Mae by their own mistake, then they should pursue another investor that doesn't have that guideline, right?

Doesn't seem to be any issue with the type of loan.

"Agreement to Correct Clerical Errors. In the event of a mistake or clerical error in any of the documents or in any amounts paid or received at closing resulting therefrom, Seller and Borrower/Purchaser agree to promptly execute such documents as requested by closing attorney and to pay any amounts due to owing as a result of said errors ..."

That's a pretty broad clause.  Looks to me like that could well be used to request money from you, per highlighting.  Maybe offer some sort of split of the money they want if they really won't back down.

You would be liable to pay, if there were some type of Error....as in they made a mistake in the property tax prorations by using the wrong date of closing, and were requesting you pay what you truly owe......but there was no clerical error here.  They simply approved and processed a loan, with no mistakes in it, that they can't sell to FNMA.  Oh well.

Perhaps there is a way out of this that is a win-win solution... Does the property need any repairs? Do you want a home warranty? New appliances? Maybe you can give the $1300 back and the seller can give you a non-cash item or service worth that amount? Maybe the seller with cooperate and help you out.

I'm happy to report that this issue was resolved.  

I determined that they had no cause for accelerating the loan and that in such event, I would have 60 days to refinance.  I let them know that those costs would be pursued in court and that I was hopeful another solution existed.

They first came back with a "compromise" that involved a refund of the appraisal and another fee that essentially split the difference.  I politely refused and asked to speak with someone who was able to fix this without having to file a formal complaint with CFPB.  

Within 24 hours of that, I received an updated HUD to sign that offset the balance with reduced lenders fees. I reviewed it three times and confirmed that I did not owe anything additional and the loan was sold a few days later.

The culprit was GoodMortgage.com.  

They were able to give me a really good rate and the loan officer was friendly.  I really did not appreciate the heavy handed threats to squeeze me for a relatively small amount of money that was entirely their fault.  

I hope this information is useful to the community.  Thanks everyone for your help in understanding the issue and recommending some solutions that helped me win one for the little guy.

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