Profile picture for Weemandaisy

Is bank ethical?

We have already pre qualified with our mortgage broker. We found a home that we want to put an offer on, it is bank owned. The owner says that it is MANDATORY to prequalify with them to submit an offer for consideration. My broker uses this bank as one of her resources. Is this ethical of this bank's requirement? Does not seem like an "arms length transaction". Any advice or knowledge to help me with this?
  • March 15 2011 - US
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Answers (6)

Profile picture for Mike Shirley
I wouldn't worry too much.  Banks are segmented and unless it's a really small bank, the loan officer reviewing your credit will not even know the person working on the sale.  Further it would be a huge breach of ethics and probably open the bank to lawsuit if your confidential information were to be shared with the real estate department.
  • March 15 2011
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All though you may have pre qualified with a mortgage broker the bank is usually looking for a cross check so that the property is not taken off the market and you get down to the closing and your loan doesn't go through. I suggest that you have your Mortgage broker call the bank and give them the information that they request. If he/she has done their job they should have all the information at their fingertips including your credit report. Hope this helps.

With kindess regards its a great life,

Gary
  • March 15 2011
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Profile picture for Weemandaisy
Follow up question... Wouldn't this cut down my negotiation power? If I put in an offer of say 150K and the bank (owner) discovers that we can actually afford $200k, couldn't they turn down my lower offers because they know my financial status? That really is my main concern. Thatand multiple inquires into my credit.
  • March 15 2011
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Profile picture for Mike Shirley
We don't run into this much these days but it does come up occasionally.  If you really want this home you should go through the process.  The bank just wants to see that you can actually close the deal. 

If you keep looking for other homes, make sure that you are "pre-approved" by a quality lender.  Pre-approval means that your lender has actually done the work to confirm that you have funds to close, and that you actually make the money you say you do.  In other words, everything is done, you just need to bring you lender the address of the property and do an appraisal and title search.  It's allot more work, but worth it.

Next time if you walk in with a strong pre-approval, there will likely be no cquestion asked. 

Good Luck!
  • March 15 2011
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Banks are concerned that you are not using a lender that can't close the deal. Time is money and if your deal falls apart because your lender can't perform is extremely costly to the bank.

In many states you aren't required to use the bank as your lender. You just need to pre-qualify with the lender to ensure you can close on the purchase.

I recently submitted an offer without pre-approval of the lender/owner, but with an A-1 local bank as my buyers lender and the bank said nothing about pre-approving with them.
  • March 15 2011
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There are some banks which require you to pre-qualify with them if buying one of their REO properties. I believe their primary motivation (which is both ethical and ligitimate) for doing this is to ensure that the buyer is really qualified.  This skepticism as to the validity of a pre-qualification letter (other than theirs) stems from many years of abuse, maybe even by this very bank's own loan officers, who would sometimes fraudulently give a pre-qualification letter, even when the borrower had not yet proved he was pre-qualified, all in the chase to get his loan business.

So this way, by demanding that you qualify with it, the bank has total access to all your documents and credit history, and if satisfied, will go ahead and accept your offer.  I have never seen a bank demand that you actually write the loan with them, rather just pre-qual through them.  

The bank's requirement that the transaction be one at arms length refers to the relationship between buyer and seller, with the bank ethically attempting to verify that it is getting the true market value for its property, where market value is defined as the price paid by a willing buyer to a willing seller with no hidden incentives or conditions.  The fact that it is attempting to verify your qualification to buy has nothing to do with whether the transaction is one at arms length.
  • March 15 2011
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