Mortgage Commitments are they real or not? Two complaints cast some shadows over this question…

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Complaint 010614-004A

This complaint was made by a mortgage broker. This mortgage broker had a client who was buying a property. She was accepted for a mortgage in less than 24 hours and in a week, all conditions were removed from the mortgage commitment. Five days prior closing, the lender advised the mortgage broker that it would not provide the mortgage and disburse the funds. Here is the interview with the complainant.

MB: You have to understand this was a simple deal for me. I do business in a rural area that is depressed economically. This mean most of my deals have challenges because the income is not stable or because of credit. But with this deal this was not the case. The client was from Toronto and she was a known actress. She was buying a property over here for her and her daughter. Income was good. Credit was excellent. A lot of assets… 24 hours after submitting the app, it was accepted and the client did not procrastinate and I had my proof of income, down payment in less than a week and as a result all conditions were removed from the mortgage commitment. For once I had an easy deal and everything was done months prior closing.

FSCA: So what happened?

MB: Well on Friday at 4pm and 5 days prior closing someone from the lender left me a voicemail. It was short. The message said sorry but we can’t provide you with the mortgage. There was no reason provided at all.

FSCA: No reasons at all?

MB: None. I was panicking. This was 5 day prior closing on a Friday. So I called the lender and luckily calling all over the place, I was able to get my hand on an underwriter.

FSCA: What did they say?

MB: They said I did not have a mortgage anymore for my client.

FSCA: Why?

MB: You won’t believe it. They had realized that the house came with 16 acres of land.

FSCA: Is this a problem?

MB: Not if you do your job right and I know my job. So I had made certain that the value of the house used to secure the mortgage was based on less than 1 acre.

FSCA: Did you tell the lender this?

MB: Yes I did thinking it was going to solve the problem and that it was a simple misunderstanding.

FSCA: But the lender still did not change its decision?

MB: Hell no. The answer I got was that they did not lend on a property which had more than a certain amount of acres… I can’t remember the number… I could not believe it. So I verified with them that they understood that the value of the house did not include most of the 16 acres and that they were getting free collateral to secure the mortgage. No they said. The rule is the rule. I told them this is crazy. This means if I was to split the property in two and remove most of the land, they would give me a mortgage and they told me yes.

FSCA: But you could not do this…

MB: Never. The client and the real estate agent would have thought I was a nutcase. Anyway not 5 days prior closing…But the lender did not want to budge. The rule was the rule they said. Finally I asked where was this rule? It was not in the rule book I had. You know what they answered?

FSCA: No

MB: They told me it was an internal rule and that they did not publish those. It was crazy but it was like talking to a robot… and maybe I am insulting the robot.

FSCA: Did you have to tell your client they did not have a mortgage?

MB: Yes I did and it was the hardest phone conversation I ever had. Luckily, I knew someone at a local bank branch and I got her an appointment on Saturday morning since I could not wait until Monday to resubmit the deal to another lender. By Saturday afternoon the client got her approval and she was back on track. So I lost the client, the deal and even some of my reputation in the real estate market.

What blows me away was I believed that mortgage commitment were real and legal contracts. If your situation does not change, the lender is obligated to provide you with the mortgage. Once the client removed the mortgage condition from its offer of purchase, the client needs to know that the lender will honor its commitment. But I guess I was wrong… If I had not secured another mortgage we would have all been sued…

Complaint 010614-004C

This complaint was from a client. After applying for a mortgage he was quickly approved and all lender conditions were met. The only condition was a purchaser condition of having a house inspection made as part of the purchase agreement and not part of the mortgage agreement. The house inspection revealed a problem with the foundation and the purchase agreement was modified to make the purchase conditional that the foundation be fixed within the week and prior acceptance of the offer. The lender requested to view the house inspection and then decided to withdraw its mortgage offer.

CL: I know mortgages because I am not one of those house virgins. I moved a lot and I had to purchase many homes and many times I had to carry 2 residences; the old residence until the end of school year when it could be sold and a new residence where we would move. So I know how to do those and how to use CHMC and GE… Anyway, this time it was a simple purchase. We were renting our other house. And everything went fine despite my new job. I was approved and made certain to give proof of everything so that all conditions were removed from the mortgage before telling the seller I had a mortgage. I don’t like surprises.

FSCA: What happened?

CL: My purchase offer was conditional on a house inspection. This was not part of the mortgage offer. When the inspector came it was found that the foundation of the house extension had a problem. We wanted this to be fixed immediately before agreeing to purchase a house by a professionally recognized company. The seller agreed and we were lucky this company could start immediately and do the work in a less than a week. As a result, we redid the purchase agreement to add this condition. Also, the cost for the foundation work was about $10,000. The seller did not want to be responsible for the whole amount as they had given a very good deal on the house way below the assessed value. So we agreed to split the cost and increase our purchase price by $5000 which was still way below the asking price…

FSCA: Did this work?

CL: Well not exactly. The lender requested a copy of the inspection report and then within the day informed us they could not lend us the money.

FSCA: What did you do?

CL: At first I believed they were worried the value of the house was not as stated. So I said ok I am willing to pay at my own expense for an appraisal after the foundation was fixed. Then the lender would have the real value and not a simple guess… which would protect the lender even more.

FSCA: Did they accept?

CL: No absolutely not. In fact I was told the house was not mortgageable anymore. I said what do you mean not mortgageable anymore? Is there a black list of houses which cannot be approved for mortgages? What about houses who had water damage or fire damage. If they are fixed you should be able to get a mortgage. They did not want to answer me.

FSCA: What did you do?

CL: I told the mortgage broker to reapply with a new lender.

FSCA: Were you successful?

CL: No. It seems this black list did exist. It was CHMC that came back telling us the house could not qualify for a mortgage anymore. This was crazy. What was I supposed to tell the seller? That not only I could not buy the house but that nobody could buy it either? We were all going to get sued. Anyway I told the broker to find me a lender because if I was going to set sued, he would be getting sued also.

FSCA: Did the broker found a new lender?

CL: Yes he did and I was so happy. So I ask him the rate willing to accept an increase but then the broker told me I could not get the rate or the payment. I had to accept a blank mortgage rate and payment. I could not do this. I could not believe my ears and when I told it was illegal, he told me no it was not. Anyway I even called the lender’s underwriter and they refused to tell me. I was starting to get angry and I called the broker telling him I needed all the info before telling the seller I had a mortgage. That’s when the broker told me he had already informed my real estate agent that I had a mortgage. I lost it. I fired him on the spot and sent him a Cease and Desist letter stating that he was to desist talking to anyone about my mortgage.

FSCA: So you were out of a mortgage?

CL: Yes but luckily I understood how mortgage works and I hoped that the broker did not black listed the house with GE. So I went to my local bank branch and applied for a mortgage there with a new purchase agreement since the foundation had been fixed and passed inspection. In the purchase agreement there was nothing about the foundation or house inspection. I told the bank employee that I wanted GE. Anyway 24 hours later I had a mortgage and I was able to buy the house.

FSCA: So what are your feelings about this?

CL: Well my wife taught that I was committing fraud by not telling the bank about the past problem with the foundation. I disagreed and I resent this. Buying a house should be a pleasurable experience and you should not be left wandering if you have defrauded someone. If the lender wants to know about the condition of the house, then they should ask it in their application and add this condition in their mortgage commitment. This was not professional at all and it is unacceptable. We need to believe the lender will honor their commitment because there is legal purchase agreement stating we have financing. And this thing about black listing a house, this is crazy… Also I am still upset about a lender and broker trying to pressure me to accept a mortgage without knowing the interest rate and payment. This is fishy. Something is wrong there and I still don’t like it at all…

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