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Legal recourse for not disbursing funds after refinance closes?

We recently got a call from Citimortgage (our current loan servicer) about refinancing under HARP. We have an 80/20 mortgage on a condo and are under water, never been late on a payment. We started a refi inquiry with Citi months ago, but never heard from them. When they finally called, we were very up front with the guy that we had just purchased a second house due to an expanding family, and it was up in the air as to whether we were going to sell or rent the first property. When we first inquired with Citi about refinancing, we still lived in the condo as a primary residence. We were very up front that this was no longer the case.

Everything ended up being pushed through, we had to pay our property taxes early, a notary came to our house to sign all the docs. We were told we had 3 days to back out. Three weeks and MANY phone calls to Citimortgage later, we still had not heard from them and our loan was still not disbursed. My husband got a call back today, finally, saying that our loan was kicked back to Underwriting where they now refused to fund it because we own a 2nd property.

We want to know, can they legally do this after providing us a GFE and after all of the paper work was signed to close the refinance? We were not evasive at any point about owning two properties, and they even saw evidence of this at the point of approval when they ran our credit report. We were assured many times that it wasn't going to be a problem. It seems unfair to us that 3 weeks later they can just say "sorry" without giving us any notice. We want to know if it's in our best interest to contact a lawyer. The refi was going to save us a lot of money over the next 25 years, and after being told that we could still go through with it, we decide to keep the property as a rental and rented it the month after the loan was supposed to close. 

Any advice would be great!
  • March 25 2013 - Portland
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Answers (12)

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Hi Julie, All of the discussion about our new home was over the phone. When he first called to tell us we were approved to refi, our response was "Great, but we want you to know we now own a second home that is our primary residence." So all of that was on the phone, but he reassured us that it wasn't a problem at all. They even had to extend the closing date once so we could prepay the property tax on the condo property, so we feel like there was a lot of time for them to realize it if the terms weren't correct...?
  • March 26 2013
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First big RED flag is that they were not treating this as a secondary or investment property. If they had been, it would have funded same day. So, that right there tells you they messed up. If you in fact told them it was to be treated as a second home or investment, your rate and closing costs most likely would have changed. Do you have the information in writing that you sent them? 
  • March 26 2013
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Were you doing a Fannie or Freddie HARP loan?  

I am located in Auburn, ME.  

If you would like me to try to pick things up where they are and rush your loan.

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  • March 25 2013
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Maine Office of Consumer Credit Regulation. 
Bulletin -  October/ November 1999 

New Laws Take Effect
1. Public Law (PL) 1999, Chapter 145, "Funded Settlements" click link

The new law requires lenders to disburse funds to settlement........
  • March 25 2013
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I can't tell you how helpful this information is. We have been in contact with the Title company, and as of a few days ago they were still under the impression that everything was still good to go. They reached out to Citi as well because no one had contacted them. We will follow up with them tomorrow and see if any wire/notification was sent!
  • March 25 2013
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I think Chris and I are in agreement that you have a reason to see an attorney. I'd start with the tittle company that closed your loan and ask if they were ever sent the wire or were notified that they were never going to send it.
  • March 25 2013
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Thanks Chris, that is really great information!!!
  • March 25 2013
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Maine is a "Wet" state.  "Wet States", states that have "Wet Settlement" laws, require lending banks to disburse funds within a period of time. Depending on the states' Wet Settlement laws, some require the disbursement of funds to the sellers and other involved parties on the day of the settlement, others within 2 days of closing. Wet Settlement laws are in place to curb the bank practice of delaying funding after closing documents have been signed by the borrowers.

All of the prior to funding conditions must be met in order for the lender to allow doc to go to closing in Wet States. 

In Maine, funds must be disbursed at or before closing.  In the case of a refinance, funds must be provided prior to noon of the first business day after the rescission expiration period.  Violators are subject to the greater of actual damages or between $250.00 and $1,000.00, plus court costs, and attorney's fees.

I would talk to a real estate attorney

Best of luck. 
 

 
  • March 25 2013
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We weren't told that it had anything to do with debt ratio. Also, I am not sure how that would be possible considering we were approved for the second property with no problem with the debt to income ratio? I would think we would have had the same problem at the closing on the second property if it was that issue. We were told it was simply because the property was no longer our primary residence. 
  • March 25 2013
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Well, unless they denied your loan for some other reason, for example if they were not calculating your 2nd mortgage payment and when they did it proved that your debt to income ratio was too high, or something of that nature, I do not understand the grounds in which they denied your loan.
  • March 25 2013
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No, we never heard from anyone in the 3 day period. No letters received or anything, we only just found out today that they will not fund the loan. We closed on Feb 26, and today is Mar 25. It was supposed to disperse Mar 4, and that was when we started contacting them because it didn't happen.
  • March 25 2013
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I would absolutely contact a Title Attorney.  Did they give you notice within the 3 days post closing that they were not going to fund the loan?  Fannie Mae says this very clearly: https://www.fanniemae.com/content/faq/harp-du-refi-plus-faqs.pdf

Q57.  Eligible Property Type and Occupancy
Is there any requirement that the existing mortgage and the new mortgage represent the same occupancy?

No. The occupancy of the subject property may have changed by the time of the new mortgage transaction. Because the loan represents existing Fannie Mae risk, there is no requirement that the occupancy has stayed the same. This may result in transactions that would not otherwise be permitted under standard guidelines, as follows:
investment properties that are manufactured housing,
investment properties that are cooperatives, and
2-to 4-unit second homes.
These types of transactions are permissible under Refi Plus (DU or manual). All existing restrictions on property types, such as condo hotels, continue to apply. (Note that occupancy changes for cooperative units may be subject to the cooperative's rules and regulations.)

Call me with any questions.  207-370-5363
  • March 25 2013
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