Lenders Adding Conditions After Loan Closing

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I love your site and you are very knowledgeable. I have one quick question for you. I bought a home, I made it through closing, I moved my family into the home. During the process I used some closing cost money afforded to me through the VA loan process and lender to pay off 3 credit cards. I never signed anything that said I had to close those accounts to qualify for the loan or get the house. Now my loan officer told me that I need to go ahead and close those accounts and send him the letters stating that they were paid in full and closed. He said that he needed them so that the loan would make it through auditing and if he didnt get them that the loan would come right back to them and his boss is not going to want to buy that loan back and then it would open up a big can of worms. I closed on the 14th of Sept. Im positive the sellers have already received their money. Which from what I have read means the loan has been funded. I believe that the lenders goal was to sell the loan from the get and me closing the accounts makes the loan more enticing to be purchased and they are trying subtly to make it seem like I could lose my home when in essence they would be stuck with the mortgage that they approved but had no intention on keeping. I just wanted your opinion.

If closing them was a condition of the loan, it should have been taken care of in underwriting or funding. If it didn't, and the brokerage has to buy the loan, it's no skin off your nose - it's their own fault for letting it get this far.

If it was a condition of the loan, it should have been on the list of conditions put into the loan by the underwriter. I don't volunteer a copy of the outstanding conditions, because I regard meeting those as my responsibility as the loan officer, but I'm always happy to give one out because it shows an involved client that I am on top of things. I do advise people to ask for one before they sign - signing the final documents commits you to that loan (after the three day right of rescission, but there is no rescission period for purchases). It's a good thing if you know what obstacles (if any) are standing in your way before you commit completely like that. There are always the routine funder conditions - verifying cash to close, etcetera, but in general there really shouldn't be anything else in the way of unfulfilled conditions. On those rare occasions there other outstanding conditions, I have previously discussed them with the client and they know what is going on.

I recommend against drawing any lines in the sand until you have discussed the matter with an attorney licensed to practice in your state. I am not an attorney, and I don't pretend to be. In general, however, any issues outstanding should have been dealt with prior to actually funding and recording the loan. Once its recorded, they can't call the money back without external cause.

There are two possible reasons for the request. One, they screwed up and don't want to be stuck with it. Understandable, but not your issue at this point. If they needed you to close those accounts, the underwriter should have made certain it was done before he passed it on to the funder. That funder should not have put the money to the loan without making certain it was done, or, more likely in the case of a payoff, closed the accounts with the payoff money. Note that closing the accounts would also have required your written permission, which should have been part of the process of getting the loan to that point. But once the loan is closed and recorded, they're telling you that you've done your part, and that everything you're required to do has been done.

I have worked in both broker and correspondent lending. In both cases, the underwriter is an employee of the actual lender - not the broker or correspondent. They may be assigned to that broker, correspondent, or even to a subset of loan officers, but they are still an employee of that lender and responsible for seeing that the lender's guidelines are followed before approving the loan. A broker's funder is also a lender employee - the lender is the one putting the money to the loan to make it work, there's not a penny of broker cash involved. A correspondent funder, however, often works for the correspondent, who actually funds the loan and hence gets a better price through the secondary market, but they are still required to make certain all of the underlying lender's guidelines have been followed. A correspondent funder should be even more hard nosed than the lender's own funder because otherwise they are risking the lender not buying the loan, and it eating up that correspondent's line of credit or cash. That has some really bad consequences to the correspondent in terms of costs. The lender not buying the loan is a real concern if the rate/cost tradeoff has gone up since the loan was locked, and may possibly mean the correspondent loses money through not being able to sell the loan for what they thought they could (although it's still not your fault). It has been my experience that correspondent funders are very anal retentive, even by comparison with other funders - which is exactly as it should be.

Since at least two cutoffs were missed, my belief is that what's more likely to be going on is that they are hoping for a better price for the loan. In other words, more money, and are hoping you cooperate in order to facilitate that. Once again, talk to an attorney licensed in your state about your particular situation, but my understanding of the general class of events is that it's completely up to you as to how far you cooperate. You did what you were required to do in order to get the loan funded and recorded. If they dropped the ball, it's not your fault, and not really your problem

Caveat Emptor

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About this Entry

This page contains a single entry by Dan Melson published on April 21, 2014 7:00 AM.

Why You Shouldn't Have All Your Money In Real Estate was the previous entry in this blog.

Paying Off Old Past Due Bills Without Hurting Your Credit Again is the next entry in this blog.

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