Real Estate Challenge

[atrif]

What is the name of your state? MN

I recently entered into a contract to purchase a home with several contingencies including a financing contingency.

The home inspection checked out but the home appraisal came in $37,000 less than the agreed upon price. Through my buyer's agent, I informed the seller and moved to renogiate the price.

The seller is building a new home and using the same lender as me to finance this home. Through their loan officer they learned of a program that allows the bank to approve my financing without consideration to the appraisal. It's a special program because of the company I work for. I, nor my agent, knew anything of this program and tied the contingency to the financing, and not directly to the appraisal. The seller now refused to move on the price because he says I have met all the contingencies and have secured the financing.

The bank says they are not legally able to turn me down for the financing. I have raised the issue of the details of my financing being known to the seller before me and the fact that they never informed me of this "who cares what it appraises for" condition. They say the can't legally do anything about that.

Now the Seller wants to keep my earnest money and are threatening to sue. We "close" in two weeks.

1) Does the seller have a right to the earnest money?

2) What else can the seller sue for?

3) Can I be forced to pay the agreed upon price?

4) What are my options?

Thanks in advance for any help. - Trapped In Minnesota

 

[HomeGuru]

What is the name of your state? MN

I recently entered into a contract to purchase a home with several contingencies including a financing contingency.

The home inspection checked out but the home appraisal came in $37,000 less than the agreed upon price. Through my buyer's agent, I informed the seller and moved to renogiate the price.

The seller is building a new home and using the same lender as me to finance this home. Through their loan officer they learned of a program that allows the bank to approve my financing without consideration to the appraisal. It's a special program because of the company I work for. I, nor my agent, knew anything of this program and tied the contingency to the financing, and not directly to the appraisal. The seller now refused to move on the price because he says I have met all the contingencies and have secured the financing.

The bank says they are not legally able to turn me down for the financing. I have raised the issue of the details of my financing being known to the seller before me and the fact that they never informed me of this "who cares what it appraises for" condition. They say the can't legally do anything about that.

Now the Seller wants to keep my earnest money and are threatening to sue. We "close" in two weeks.

1) Does the seller have a right to the earnest money?

2) What else can the seller sue for?

3) Can I be forced to pay the agreed upon price?

4) What are my options?

Thanks in advance for any help. - Trapped In Minnesota

**A: please post word for word exactly what your financing contingency states and method of financing.

 

[atrif]

As asked:

Buyer will apply for and secure at Buyer's expense a privately insured conventional fixed mortgage in the amount stated in the Purchase Agreement amortized monthly over a period of 30 years with an initial mortgage interest rate at no more than market rate percent per annum. The mortgage application IS TO BE MADE WITHIN FIVE BUSINESS DAYS after the acceptance of this Purchase Agreement. Buyer agrees to use best efforts to secure a commitment for such financing and to execute all documents required to consummate said financing.

FINANCING CONTIGENCY: This Purchase Agreement is contingent upon the following financing contingency. If Buyer cannot secure a commitment for such mortgage, this Purchase Agreement herein shall be refunded to the buyer; Buyer and Seller shall immediately sign a cancellation of Purchase Agreement.

Thanks for the help.

 

[JETX]

I don't see anything in your contingency as to meeting appraisal values. So, as long as the lender is able to provide you with a written confirmation of financing, I don't see how you can use this contingency as an 'out'.

And assuming that all other contractual contingencies have been met, it looks like you are going to be a homeowner.,

Your questions:
"1) Does the seller have a right to the earnest money?"
*** That would depend on the specifics of the escrow agreement. Normally, since the contingencies have been met, the seller has the right to the escrow if you breach the agreement.

"2) What else can the seller sue for?"
*** Theoretically, the seller could sue to force you to comply with the agreement, but that is unlikely as it would 'tie up' his property for the duration of any action. The seller could also sue you for any 'damages' he incurs (lesser sales price, additional interest paid, etc.) due to your breach.

"3) Can I be forced to pay the agreed upon price?"
*** See above.

"4) What are my options?"
*** Pretty simple, you can continue with your purchase, or you can breach the agreement and lose your deposit plus face possible legal action.

I have to assume that your entire basis for concern at this point is that the house didn't appraise for what you agreed to pay. If that is the case, without a provision in the contract, you are going to have to accept that fact. You (or your agent) had an obligation to be aware of 'market prices' before you signed the agreement. Proof of the adage, 'hindsight is 20-20'.

 

[atrif]

Thanks for the straightforward answers.

Does it make any difference that I went into the contract without knowledge of the lender's policy to grant the financing no matter what the appraisal or that the lender disclosed this information to the seller without my consent?

 

[JETX]

"Does it make any difference that I went into the contract without knowledge of the lender's policy to grant the financing no matter what the appraisal or that the lender disclosed this information to the seller without my consent?"
*** No.

 

[atrif]

Okay then.

Closing is actually still three weeks away and the seller is building a new house that requires the equity from this house. I submitted additional comparables to the appraiser on the seller's behalf but it had no affect on the appraised value. They don't have an agent--and they actually listed the house at $14,000 above what I offered. I specifically asked if I could renegotiate the contract if the appraisal came in low (3 times) and was assured that I could. And yet I'm still in this mess. Who knew buying a house could be such a hassle. rolleyes:

Is it true they can't go into contract with someone else until we cancel our contract or after the closing date?:

 

[JETX]

"Is it true they can't go into contract with someone else until we cancel our contract or after the closing date?:"
*** I don't know of any legal reason why they couldn't close on the new house and retain the old.

However, there may certainly be financial limitations to their doing that. However, without knowledge of their financial standing, no one can answer your question.

 

[Souix]

Writer, are you sure there is not an appraisal contingency pre written in the purchase agreement? This would be language already on the printed form and not something you filled into the blanks.

 

[atrif]

1) I meant a contract on the house that I'm already in contract with them for, not their new house.

2) My agent used the standard contract from Prudential and it only had the financial contingency (and home inspection, lead paint, etc.). I was assured that financing was always dependent upon the appraisal. But then the lender didn't inform me about this program. Apparently, the house could have appraised for $1 and they would still have to give me the loan (with only 10% down). Nice program. Screwed me in this case.

 

[HomeGuru]

As asked:

Buyer will apply for and secure at Buyer's expense a privately insured conventional fixed mortgage in the amount stated in the Purchase Agreement

**A: and what is the amount of the conventional mortgage as stated?
What is the purchase price and what was the appraised value?
**************


amortized monthly over a period of 30 years with an initial mortgage interest rate at no more than market rate percent per annum. The mortgage application IS TO BE MADE WITHIN FIVE BUSINESS DAYS after the acceptance of this Purchase Agreement. Buyer agrees to use best efforts to secure a commitment for such financing and to execute all documents required to consummate said financing.

FINANCING CONTIGENCY: This Purchase Agreement is contingent upon the following financing contingency. If Buyer cannot secure a commitment for such mortgage, this Purchase Agreement herein shall be refunded to the buyer; Buyer and Seller shall immediately sign a cancellation of Purchase Agreement.

Thanks for the help.

**A: see above.

 

[BrokerRE]

I find it hard to believe

that a loan program that puts absolutely no requirement for an appraisal also carries a a "Market Rate Interest Rate".

Get your lender to quote market rate, and if this loan exceeds that amount, then you're not obligated to use this program, and you can back out based upon your financing contingency.

I'm not a lender, but I'd have to say in my area, market rate currently is approximately 5.75%. I'd say anything higher than that would be sub-prime, and your contingency would be usable.

Hell, FHA rates right now are 5.5%

What is the interest rate for this loan?

 

[atrif]

homeguru:

loan amount = $247,500 (LTV 90%)

Purchase price = $275,000

Appraisal value = $238,000


BrokerRe:

It's a 5-yr ARM at 4.25%


You guys may be on to something. Thanks for your time and knowledge.

 

[HomeGuru]

homeguru:

loan amount = $247,500 (LTV 90%)

Purchase price = $275,000

Appraisal value = $238,000


BrokerRe:

It's a 5-yr ARM at 4.25%


You guys may be on to something. Thanks for your time and knowledge.

**A: so here is what you do. The lender will only loan you 90% of the appraised value and therefore you have applied for but will not be able to secure this loan amount of $247,500. Therefore, based on the financing contingency, you have just cause to terminate the contract.
The loan program that does not need the appraisal is not an issue. The issue is the actual loan amount that the lender commits to.

 

[atrif]

**A: so here is what you do. The lender will only loan you 90% of the appraised value and therefore you have applied for but will not be able to secure this loan amount of $247,500. Therefore, based on the financing contingency, you have just cause to terminate the contract.
The loan program that does not need the appraisal is not an issue. The issue is the actual loan amount that the lender commits to

---

I'm not sure I understand: The lender will lend me 90% of $275,000. They committed to $247,500. Two things that may apply:

1- The contingency says privately insured conventional fixed mortagage but I have a conventional ARM mortgage.

2- A letter they sent me prior to this fiasco stated "This offer may also be contingent upon our receipt of a satisfactory appraisal of your property and the successful closing of your first mortgage on terms and conditions substantially similar to those originally offered.