If you deny borrower...

[Kristine Eickman]

This question is for private lenders/HML. If a buyer uses your POF to enter a contract and you then decide you are not going through with the deal...how does the borrower know that. With a typical bank you would get a denial letter, is it the same in this situation? If the buyer now wants to terminate the contract stating they could not get funding, how do they prove that?

[Bill Gulley]

David's a tad off, you can't use a financing contingency as a "right" to avoid a contract as the buyer or loan applicant must proceed in good faith to obtain timely financing. However, if a borrower told me they had concerns about their ability to pay, I'd probably decline the application on those grounds. 

What David might mean too, is that you notify the seller that you failed to obtain necessary financing and you should name the lender, the seller or their agent can verify that being named in the contract. I've had very few agents or sellers verify a loan denial, but a letter was always provided. 

Any HML offering to make a loan is still required to provide a denial letter, BTW.

You should name the lender you intend to use when contracting with a financing contingency! Otherwise, the seller can kick up dust about you not seeking financing with due diligence expected from a buyer. You can lose your earnest money messing around and your alternative to avoid other issues will be to make an application, pay loan expenses and then be denied by a reputable lender to satisfy your contractual obligation. 

This leads to another point, if I'm selling to Joe Average, I allow all kinds of mistakes, errors or blunders, but if I'm dealing with an "investor" they should be more aware of their obligations and how to proceed under contract. Plainly stated, if an investor tries to mess around and causes me to hold a property longer during my marketing time, they will be paying and they may have more liability than they ever dreamed of. If they didn't know better when they contracted they will before it's over. That's not being hard nosed or mean, it's being fair.

If you don't have the intent to buy and follow the terms of the contract, do not sign the contract! 

Unless a release is given by a seller, any assignment of a contract does not release you from the terms of that contract, you cannot assign your obligations. Then you're simply hoping the party who obtained the assignment will act. If a deal falls through the seller will be looking at you and then you may have recourse with an end buyer. 

A financing contingency cannot be assigned without consent of the seller. That is a unilateral obligation under a bilateral contract. 

Using a business entity as the buyer (like an LLC) means commercial financing and it also means that you represent that that company has the ability to purchase in good faith. If you business account has $200 in it and you're seeking a commercial loan you may well need to show that your thinking of obtaining financing was reasonable especially being in the business of real estate.

Before experimenting with wiggle room clauses investors need to Goggle "Torts" as tortuous conduct applies in all business dealings, including real estate contracts. :)