Due Diligence Hindered by Late Loan Documents

[Erika Reed]

Hello BP!

I am really hoping you can help me.  I have been working with a turnkey provider for the last month trying to get a deal together.  I had selected a property, gotten approved for a specialty loan (I have no income but didn't want to put husband on the loan), had an inspection done, and was waiting to sign the loan documents.  Here's where I am having trouble.

My due diligence period was over on December 15th.  Up until that date, things were ok.  I had a fee sheet from the lender laying out my rate, mortgage, type of loan, etc.  The numbers weren't great, but I was prepared to move forward with them.  I did not receive the actual loan documents with the real interest rate and loan terms until December 16th.  After reading the documents, I immediately contacted my transaction coordinator and the loan originator to alert them that things were NOT ok with the loan terms.  My rate had jumped significantly, and there were other errors with the documents.  The lender apologized for giving me a full doc rate on my fee sheet, and that it was her mistake.

After we figured out that the loan was not going to work and I had told them "no deal," the purchase contract was still somehow put into effect on December 20th.  I am now asking them for my $2500 back that was in escrow and subject to a deal working out, but they do not want to return my money, saying that per the purchase contract it is the seller's money now, and that if I had canceled within my due diligence period, then I would have gotten my money back.  

My question to you all is, since I was not able to review my loan documents until AFTER my due diligence period was already over because the lender was "late" in getting them to me, am I right to ask for my money back?  If they continue to refuse, is it worth going through the arbitration?  They have no good answer as to why they put the purchase contract into effect after I told them I wasn't going to go through with that deal.

I appreciate all of your help!

[Chris Mason]

Hi Lurkers of BP,

This is the risk you face when you work with a lender that is in bed with the seller in some form or another. 

It is almost certainly not a coincidence that OP did not get an accurate Loan Estimate until after her due diligence was done. I'd be shocked if there wasn't an e-mail from the "Turnkey Provider" to the lender saying "OK, you may proceed."

This sort of bait-and-switch-but-oh-too-late-you're-on-the-hook-LOL tactic is a perfectly common (and unfortunate) mortgage industry tactic in all of the following scenarios when you are working with the "preferred in-house lender" of the following entities...

• Turnkey providers. Self explanatory, re-read OP. 
• Normal listing, where the seller pushes you to work with their lender, against the advisement of your buyer's agent. 
• Any scenario where you do not have your own buyer's agent, didn't find your lender on your own, and have no way of knowing what the listing agent (or seller if FSBO) promised your lender during a phone call that you were not a party to.
• A builder on new construction. This is an entire essay unto itself. I personally do not accept "builder/lender relationship" type proposals due to all the moral hazards. I'd rather not have business, than have dirty business.