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Cayton Green
  • Financial Advisor
  • Austin, TX
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Lender changed Loan terms day before closing

Cayton Green
  • Financial Advisor
  • Austin, TX
Posted Feb 24 2022, 11:32

Hello,

My GF is in a pretty frustrating situation with her current lender and I wanted to explain the situation to hopefully get some guidance on what she should do.

She is currently in the process of a cash-out refinance on her condo (investment property) with her lender. Everything was going smooth at first. She signed her Closing Disclosure 3 days before closing day. Then, the DAY BEFORE closing day, the lender informs her that the condo is in fact 'non warrantable' and they can't lend on a traditional conventional loan and need to change the loan terms to a 'non warrantable' loan product which greatly increases her interest rate. They waited till the last minute to get an HOA questionaire which on the day before closing caused them to change loan terms.


The original rate they agreed on and signed a closing disclosure was a 3.875% rate, and the new 'non warrantable' loan product is at a 5.5% interest rate.

This obviously was a huge surprise to us, and we now want to explore other options with other lenders. We just got word today from her current lender that if we don't move forward with the 'non warrantable' loan, that we'd still be charged for the appraisal and the HOA questionaire.

--Can they still charge us for the appraisal and the HOA questionaire even though THEY changed the loan terms last minute? We were misled until the day before closing and never agreed on this new 'non warrantable' loan.

If in fact this sound illegal on their part, what options do we have to dispute this?


Any help is greatly appreciated! Thanks!

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Kristen L Garner
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Kristen L Garner
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  • Lender
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Replied Feb 24 2022, 12:03

Terrible! Something similar happened to me as an investor, before I became a lender.  Sending you a PM now. 

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Tanner Cohen
  • Lender
  • Calabasas, CA
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Tanner Cohen
  • Lender
  • Calabasas, CA
Replied Feb 24 2022, 12:33

Good Day Cayton, 

Your scenario is something i am currently dealing with for a client in DC. He is set to sign tomorrow. My experience of the HOA in my scenario has been that they are very slow in communication and are reluctant to provide pertinent documentation. Granted, your lender should have reached out for the HOA questionnaire immediately, and maybe they did. My U/W team required me to lower the LTV on the loan for us to be willing to still lend to the client on his non-warrantable condo. I am a private money lender, so this is where our scenarios start to deviate.

They can charge for the appraisal and HOA questionnaire, that is a cost your GF is responsible for regardless if proceeding with the loan.

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Andrew Postell
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Andrew Postell
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  • Lender
  • Fort Worth, TX
Replied Feb 25 2022, 09:14

@Cayton Green thanks for posting.  Always great to hear from a fellow Texan even though I wish it were under better circumstances. 

Essentially this came down to the lender having no idea what they were doing. All condominiums have to be approved with conventional or FHA lending. This is very basic "loan officer 101" stuff. So the loan officer has no idea what they are doing likely because they have never written a mortgage on a condo. Oh, and just to be clear here - some of the approved condos here in Texas you can just check with an online search that takes maybe 60 seconds of time. THAT'S how easy it is to find this out. And since they have never written a traditional mortgage on a condo...that means they have also NEVER written a non-traditional mortgage on a condo either. I would highly recommend changing to a different lender right away.  It's not likely to get better from here with this lender.

You can make a formal complaint against the lender using this link: https://www.consumerfinance.go...

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Peter Mckernan
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  • Irvine, CA
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Peter Mckernan
  • Residential Real Estate Agent
  • Irvine, CA
Replied Feb 25 2022, 09:23

@Cayton Green this can happen with either the HOA, lender or both taking their time and not doing the due diligence for you/her when they were suppose to be doing it. If they were not doing it, the underwriter should have been asking these questions way in advance. If this is a broker I would see if they can check any other lenders that they have in their network that could give you a better rate/term on the loan (they can check their database pretty quick).

If she goes the route of canceling I would hold lender liable for the EMD (I assume this was waived) and also hold them to crediting the appraisal fee too.

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Stephanie Medellin
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Stephanie Medellin
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  • Mortgage Broker
  • California
Replied Feb 25 2022, 19:46

@Cayton Green  This probably won't be a popular opinion, but unfortunately a closing disclosure isn't an indication of final approval or a guarantee that the loan will close.  While it's not common, the rate can be changed prior to closing in certain circumstances. This is one of them. With a program change or other change in loan terms, or if your rate lock expires, the interest rate can change. If property value comes in lower than expected and the LTV changes, interest rates can change. If the change in interest rate is larger than 0.125%, you will have a three day waiting period to "think about" whether you want to proceed. I'm certainly not saying this is a great business practice, but it's not illegal to change the rate after the closing disclosure has gone out. The property does not qualify for the loan your GF applied for. They could deny the loan, but they are offering an alternative.

The loan officer should not have indicated that you were ready to close on your closing date if they did not have final approval.  They should have been in communication to let your GF know what else they were waiting for.  Ideally, they should have ordered the questionnaire in the very beginning, or asked you general questions about the complex before asking you to pay for the appraisal, since the questionnaire is less expensive.  For anyone purchasing a condo, please do not remove loan contingencies before learning whether the condo project has been cleared by underwriting.

The appraisal is typically an out of pocket expense, similar to the home inspection, that the applicant will be responsible for whether or not the loan closes. The good news is, you most likely can transfer that appraisal to a new lender if you've already paid for it. Before doing that, try to find out why this condo is non-warrantable. If she's doing a cash out refinance, she's most likely already at 75% LTV or less, which should only need a limited condo review.

You can go to a new lender with enough details to hopefully avoid this problem a second time.  I hope things work out, and I'm sorry this happened to you.  Best of luck and ask a lot of questions upfront!

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Replied Feb 19 2024, 18:50
Quote from @Stephanie Medellin:

@Cayton Green  This probably won't be a popular opinion, but unfortunately a closing disclosure isn't an indication of final approval or a guarantee that the loan will close.  While it's not common, the rate can be changed prior to closing in certain circumstances. This is one of them. With a program change or other change in loan terms, or if your rate lock expires, the interest rate can change. If property value comes in lower than expected and the LTV changes, interest rates can change. If the change in interest rate is larger than 0.125%, you will have a three day waiting period to "think about" whether you want to proceed. I'm certainly not saying this is a great business practice, but it's not illegal to change the rate after the closing disclosure has gone out. The property does not qualify for the loan your GF applied for. They could deny the loan, but they are offering an alternative.

The loan officer should not have indicated that you were ready to close on your closing date if they did not have final approval.  They should have been in communication to let your GF know what else they were waiting for.  Ideally, they should have ordered the questionnaire in the very beginning, or asked you general questions about the complex before asking you to pay for the appraisal, since the questionnaire is less expensive.  For anyone purchasing a condo, please do not remove loan contingencies before learning whether the condo project has been cleared by underwriting.

The appraisal is typically an out of pocket expense, similar to the home inspection, that the applicant will be responsible for whether or not the loan closes. The good news is, you most likely can transfer that appraisal to a new lender if you've already paid for it. Before doing that, try to find out why this condo is non-warrantable. If she's doing a cash out refinance, she's most likely already at 75% LTV or less, which should only need a limited condo review.

You can go to a new lender with enough details to hopefully avoid this problem a second time.  I hope things work out, and I'm sorry this happened to you.  Best of luck and ask a lot of questions upfront!

Sounds like john broussard and texas funding 6% turns into 13.5 the made up reason my name was not llc after a divorce of a commercial property bought with my funds during marriage.. owelty lien.  Judgement.. I 100% for sure owned half.. if you want to get screwed and hear lies . .  They are the folks .