Profile picture for user041005

Earnest Money deposit

If a lender changes the terms on a loan contract will I have to forfeit my earnest money deposit. I initially signed off on a 3.5% down payment. Now they're changing it to a 5% down payment which I can't come up with. Will I forfeit my earnest money deposit. They just sprung this on me.
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August 31 2013 - US
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Best Answer
If you don't agree to it, don't sign it. If you are unable to meet the 5% down requirement, ask your lender to issue a denial. If your financing is denied, you should receive a refund of earnest money if you have a fianancing contingency. I still recommend consulting with your agent on this. He/she is the best person to give you advice and is required by law to act in your best interest.
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September 03 2013
Profile picture for user041005
I dont understand how I'm responsible. I was not aware of the additional information needed until 26th which was 4 days before closing. There was no way that I could get the extra 2700 they requested as well as the paper work from the IRS that I requested as soon as she gave me what I needed. If they would have let me know that I needed this additional information in a timely manner I would have backed out of my contract before hand.
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September 03 2013
Profile picture for wetdawgs
@user041005:

In real estate deals, the buyer has responsibilities and that includes the buyer's team's actions (the agent, the lender etc).   Your team was not able to deliver, therefore, you didn't meet the contract deadlines.   You were the boss of the team.    It appears you had some financial surprises that appeared after the process started.  Almost no lender meets deadlines when that happens. That responsibility is  on your shoulders.  

You do not have to agree to the terms of the extension countered by the seller. Not agreeing is effectively cancelling the deal after the end of the contingency period (i.e. you did not meet the terms of your contract).


You've learned some lessons in this process.  Take them forward with you. 
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September 03 2013
Profile picture for user041005
My extension was not on those terms. Those are the terms of the seller's agent
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September 03 2013
And it is assumed that you signed the extension agreeing to those terms?
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September 03 2013
Profile picture for user041005
My agent filed an extension on Thursday and we were supposed to close on Friday so the agent wants these terms to be added. I don't see how it's my fault that the agent didn't file the request in a timely manner and the loan officer has not approved the loan because they needed additional information.
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September 03 2013
I agree with wetdawgs.  However, it does appear that you should have the ability to cancel the contract and receive a refund of your earnest money.  If you cannot be approved by your lender under the original terms on the purchase agreement, then the financing contingency should apply.

Having not filed your taxes and now filing your taxes is not reason to deny a loan.  Can the lender find a way to use your fiance's income as to original plan?

My best advice is to have a straight-forward conversation with your agent right away.  Hopefully you have a good one who can help you through this.  If there is anyway that the lender can figure this out and put it together for you that is likely best case scenario.
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September 03 2013
Profile picture for wetdawgs
Oh dear, you appear to have quite a mess at your hands.

"I filed an extension through the IRS because I knew I was going to owe".    This will raise flags to any lender.   Of course, you were aware that you have to pay an estimate of what you owe at the time of filing extension (or at least by the tax due date). If you didn't, you will owe a penalty.    Even with a payment plan, this debt will count in your debts.   

Did the lender provide information of what they need from the IRS related to your tax filing and the estimated time frame? 

As you've not met the deadlines, the seller (and listing agent) don't have confidence in your ability to close,  therefore, they have the right to ask you to put down more money in earnest money.  It is very costly for both of them to continue to pursue a purchase offer when they don't expect it is going to close.    If you are confident you are going to close by the deadline, then go ahead. 

As it appears the lender has learned more about your finances than the lender knew when you first applied, therefore, they do have the right to change terms because now it appears that you are a higher risk than they first thought.

You may feel like you are being bullied, but IMHO, the lender and the seller are both doing the right thing due to your lack of performing as per the contract.  This is certainly not bullying, but simply asking you to perform on a legal contract. 

If you aren't 100% confident that you can get financing by the deadline imposed by the seller, at this point your best option is to cancel the contract.  Most likely you will not get your earnest money refunded due to missing the original contract terms.





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September 03 2013
Profile picture for user041005
I don't have excellent credit but the underwriter came back with a higher down payment because my debt to credit ratio was high and we were unable to use my fiance's information. So we needed additional information for this to go through. I filed an extension through the IRS because I knew I was going to owe. I was asked to file my returns and get my fiance's W2's as well as his pay stubs even though he wasn't going to be on the loan. I just filed my taxes on Friday and I had to work today so I can get the additional information tomorrow but I feel like I'm being bullied and I need to get out of this.
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September 03 2013
Was your initial loan contract for FHA and they changed it to conventional?  Fannie Mae allows a 3% down payment if you have excellent credit.  Did the lender explain why they changed the down payment requirement?  Does the purchase agreement call for 3.5% down and does it have an FHA financing addendum?  

From what you posted, it seems that they pre-approved you for FHA financing and then for some reason determined that FHA doesn't work for the transaction and changed the loan to conventional.  If you still want to buy the house, you could talk with your agent, get the contract extended for 10 days and select a different, reputable lender who can honor what they quote you initially.
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September 03 2013
   If you have signed off on a 3.5% down and then your Lender changes it to 5% then you can terminate the contract due to not being able to obtain credit approval stated in first paragraph of the Third Party Financing Addendum as long it is within the stated number of days that both parties have agreed upon.  Of course, I am in the United States of Texas, so we do allot of things different from other states when it comes to Real Estate.
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September 03 2013
Profile picture for user041005
There was a financing contingency but the seller's agent came back with these terms.

An extension was granted but the seller put in these clauses 

1. Buyer will provide an additional $2,500 in earnest money deposit. 
2. $5,000 Earnest money deposit is non-refundable. 
3. Lender provides a statement that all other conditions of the loan have been met and the only outstanding issue is the absence of the tax transcripts. 
4. Settlement must take place on or before Friday, September 20, 2013. 
5. If settlement does not take place as scheduled, contract is considered null and void and earnest money deposit is immediately surrendered to seller. 
All other terms and conditions remain the same, in full force and effect. 
I am not willing to provide an additional 2500 and once again how is my earnest money deposit in question if I can't get the financing. 
I hope I don't have to get a lawyer involved. :(
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September 03 2013
I can only speak for Colorado rules.  In the contract there is a loan objection date where you can cancel the contract prior to that date if the loan terms change as in your case.  If that date has passed then most likely would be an issue.  If you cancel before the contingency date on the loan terms condition then you should get your earnest money returned. 
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August 31 2013
The reply you already have is the place to start. That is, If your loan contingency covers you, then there should be no problem with your earnest money.  
If this is not the case, then your agent may be able to help by convincing the seller (through the seller's agent) that she is better off to release you from your contract than to fight about the earnest money deposit. It is often NOT what the contract says, but rather what is negotiated that determines the outcome.  Most sellers (unless they feel "used", or are in a desperate situation, themselves) are not comfortable keeping the earnest money of a buyer acting in good faith.
In the future, I suggest that you work with a DIRECT lender who is reliable (based on the lender's "history" with your agent, as you are likely not in a position to judge for yourself).
To avoid this situation when I am the listing agent, I often have my sellers pay for a 2nd appraisal to encourage a buyer who wants to use a lender I don't know to ALSO apply through my trusted lender.  I have avoided several conflicts in this way, and have succeeded for my sellers in situations where their sales would have otherwise failed. Since a seller cannot insist that a buyer use a particular lender, the $500 appraisal they pay is cheap insurance for keeping a mutually advantageous transaction together.  Next time, you may want to apply through more than one lender (or at least a proven lender), too. 

So, hopefully either your contract or your agent's negotiating skill will resolve this problem for you.  You may even be able to find a more compliant lender, if your agent can get you a short extension. In short, don't give up if the deposit is a significant amount.. nothing is so until the negotiations conclude.



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August 31 2013
most likely you wont lose hand money... I'm sure your contract was contingent upon you getting a loan... you may however switch lenders if you can find one willing to require the 3.5%... I'd talk to your agent they may be able to work something out depending on how much total $'s the extra 1.5% comes out to
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August 31 2013
Profile picture for wetdawgs
Did you have a financing contingency in your purchase offer?  Has the date for that passed?
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August 31 2013
 
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