Earnest Money/ Builder Issue/ Lender

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Earnest Money/ Builder Issue/ Lender

My wife and I have been working with a lender for 4 months to apply for a home mortgage. They told us that we could buy a home once our Chapter 13 has been discharged for 2 years. With a target date of mid-next month in mind, we decided to buy a new home that wouldn’t be completed for another 6 months, well after 2 years of out discharge. So after finding a home with a national builder, we contacted our lender to handle the loan. The builder told us that we had 30 days to get full loan approval or the sale would be cancelled and our earnest money refunded. They also said they would not start building until they had a full loan approval. Here’s the problem, the lender led us to believe that we’d have no problem qualifying for the mortgage. I was very clear to explain to the lender that we are only interested in being approved through their underwriter because they know the guidelines better. After going through the buying process with the builder, the lender pulled the rug out from our feet. They emailed us telling us they could no longer do the loan because of

Asked on December 23, 2016 under Real Estate Law, Nevada

Answers:

SJZ, Member, New York Bar / FreeAdvice Contributing Attorney

Answered 4 years ago | Contributor

Unfortunately, you most likely do not have any recourse against either the lender or the builder:
1) Lender: lenders are not required to lend, and they are not obligated to the loan unless and until it passes underwriting and is actually issued. Until that happens, they can decline to lend at any time, for any reason, even if there is a negative consequence (including one of which they are aware) for you: that flows out of the fact that they do not have an obligation to make a loan (lending is voluntary, so they can freely elect or choose to not lend, at any time up to when they contractually commit themselves by issuing the loan).
2) Earnest money is a deposit or security against your performance--but "your" performance in this case includes anything not under the builder's control. Whether they had started the work or not, when you agree to buy and give them earnest money, they can keep that money if you pull out of the transaction for any reason not the builder's fault, including failure to get financing: that means that if the builder would have been ready, willing and able to move ahead if you had gotten the financing, but instead the sale fell through because you did not, they can keep the earnest money.


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