Legal Question Regarding Deceptive Lender

[Jeffrey Decedue]

Hey BP,

I need to know if there is any legal recourse for the situation my wife and I have found ourselves in.

We applied for a mortgage on a condo in the Cleveland market, we received the pre-qualification and placed the offer. The seller accepted and we went under contract.

The inspection, appraisal, and title work have all been completed at this point. Now the bank has decided to deny the loan and counter back with a requirement for higher down payment AND paying off an additional $15k of debt to qualify.

The appraisal has not come back yet, as it was complete two days ago. Title search was also just complete yesterday.

Would they not have made this requirement prior to the pre-qualification just like every other lender in the country does? If we did not meet a score requirement (as suggested by the request to pay off two card balances) how would it be justified to allow the process to get this far?

The requirement for this loan was a 620 score and 5% down. We both came in with 665 and 680 and have 10% available.

At this point we are out $1000 on non-refundable services, possibly will be out of the earnest money, will be out of $2300 more for the lease termination at the apartment which we also will need to move out since it has been rented anticipating our exit in May.

Overall this seems extremely deceptive to explain minimum requirement prior to applying (would never have applied if we didn’t qualify), being approved, only to be bait and switch style roped into paying money we do not have to move in or essentially choose to be homeless (obviously we would just rent another place but it’s an extremely short notice move and apartments aren’t that plentiful)

Any advice on where to go from here?

[David Gotsill]

This is not legal advice, just my personal thoughts.

@Jeffrey Decedue - That sounds like a pretty crappy situation, and does seem that the bank lead you on.  Based on what you've shared and what I understand of the lending market right now, however, it seems to me more likely that the bank was just busy/hasty, rather than being intentionally deceptive.  Another possibility is that their underwriting has changed, as so much is in flux these past 12+ months. 

In general a pre-qual is tentative (the pre-qual letter should state as much), subject to further underwriting prior to making of the loan and, depending on that underwriting, new terms and conditions may be required.  Like you, I think that repayment of separate debts and a higher percentage down are material terms, therefore we'd hope that they don't change from the initial pre-qual, but they sometimes do.  Based on conversations with other investors and hanging out on this forum, the situation you described is not all that uncommon.  

Cutting to the chase - based only on what you've described, I find it very unlikely that you would successfully be able to bring a claim against the bank.  As I see it, you either perform to meet the bank's new demands, or leave this bank in favor of another lender.  Can you not at least get back your earnest money with a financing contingency (if you decide to leave this bank)?

- David