Real Estate

Do lenders provide a letter 'denying' financing?

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[OP]
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Nov 10, 2018
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Do lenders provide a letter 'denying' financing?

The prospective buyers of one of my properties provided an offer subject to financing and subject to home inspection. The house in question is 1 year old and the inspector blatantly told me as he was leaving (we ran into each other) in front of the prospective buyer's agent and the buyer himself that the reason he didn't take so long was because it's a new home and everything is fine (obviously this is just verbal).

As everyone knows, entering into an agreement to purchase a house must be grounded with good intent and using an inspection/financing clause for anything other than the intended reason can result in litigation.

All that being said, I do not expect any qualms from the inspection aspect and my agent forwarded me the email during the offer phase indicating that the buyer in question was "fully preapproved". Now, that doesn't mean much because as everyone knows the lender still has to do an appraisal, etc, etc.

For reasons I won't bore anyone with, there is a chance that the buyer will try to get out of this deal, at which point I will not be signing the mutual release and will commence litigation. That said, I wanted to know if anyone here has ever actually seen a letter from a lender indicating that indeed the 'other party' was not able to secure financing. I suspect this never happens as the lender doesn't want to get involved with 'buyer's remorse' nor does this actually happen much. A broker may be in a tough position and thus have to secure financing from another lender at a higher rate - usually - if indeed this happens, but thought I'd gather some datapoints from fellow RFDers.

Thanks
For legal topics and discussions, the opinion, guidance, and thoughts provided are my own and are not considered to be legal advice, in any manner.
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angryaudifanatic wrote: The prospective buyers of one of my properties provided an offer subject to financing and subject to home inspection. The house in question is 1 year old and the inspector blatantly told me as he was leaving (we ran into each other) in front of the prospective buyer's agent and the buyer himself that the reason he didn't take so long was because it's a new home and everything is fine (obviously this is just verbal).

As everyone knows, entering into an agreement to purchase a house must be grounded with good intent and using an inspection/financing clause for anything other than the intended reason can result in litigation.

All that being said, I do not expect any qualms from the inspection aspect and my agent forwarded me the email during the offer phase indicating that the buyer in question was "fully preapproved". Now, that doesn't mean much because as everyone knows the lender still has to do an appraisal, etc, etc.

For reasons I won't bore anyone with, there is a chance that the buyer will try to get out of this deal, at which point I will not be signing the mutual release and will commence litigation. That said, I wanted to know if anyone here has ever actually seen a letter from a lender indicating that indeed the 'other party' was not able to secure financing. I suspect this never happens as the lender doesn't want to get involved with 'buyer's remorse' nor does this actually happen much. A broker may be in a tough position and thus have to secure financing from another lender at a higher rate - usually - if indeed this happens, but thought I'd gather some datapoints from fellow RFDers.

Thanks
I haven't seen any formal letters, but does it matter? What does the clause say with regards to financing? Any financing, or "suitable" financing. You were just posting in a relevant thread recently.


C
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Jul 3, 2007
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a bank or a mortgage broker can easily send an email....
Member
Jun 6, 2014
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If you believe so strongly that the buyer will be using conditions of financing and home inspection as a way to get out of the agreement because of buyers remorse, why would you accept an offer with conditions in the first place? Would it not be better to insist on an offer with no conditions?
Member
May 12, 2003
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GTA
THIS OFFER IS CONDITIONAL for Five (5) business days following acceptance of this offer upon the Buyer or his Agent being able to arrange satisfactory financing, otherwise this offer shall become null and void and the deposit money shall be returned to the Buyer in full without interest or deduction. This condition is included for the benefit of the Buyer and may be waived at his sole option


This is a typical clause. In there it says specifically, "satisfactory financing", as well as "condition is included for the benefit of the buyer"

You can sue all you want, you'd most likely lose, and be out thousands in legal costs.

It aint cheap to sue someone, or be sued. I've been through it, and spent countless hours as well as ~$25,000 of my money over 3 years.
[OP]
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Nov 10, 2018
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ssj4_ootaku1 wrote: THIS OFFER IS CONDITIONAL for Five (5) business days following acceptance of this offer upon the Buyer or his Agent being able to arrange satisfactory financing, otherwise this offer shall become null and void and the deposit money shall be returned to the Buyer in full without interest or deduction. This condition is included for the benefit of the Buyer and may be waived at his sole option


This is a typical clause. In there it says specifically, "satisfactory financing", as well as "condition is included for the benefit of the buyer"

You can sue all you want, you'd most likely lose, and be out thousands in legal costs.

It aint cheap to sue someone, or be sued. I've been through it, and spent countless hours as well as ~$25,000 of my money over 3 years.
This understanding is entirely incorrect, and it does not take much research into case law or even a perusal on Google to understand further. Here's one: https://www.jayteichman.com/act-in-good-faith-duty/
icedtea365 wrote: If you believe so strongly that the buyer will be using conditions of financing and home inspection as a way to get out of the agreement because of buyers remorse, why would you accept an offer with conditions in the first place? Would it not be better to insist on an offer with no conditions?
Because the buyer's remorse set in after the offer was conditionally accepted by both parties.
CNeufeld wrote: I haven't seen any formal letters, but does it matter? What does the clause say with regards to financing? Any financing, or "suitable" financing. You were just posting in a relevant thread recently.


C
Because I want to know that the buyer actually went into this with good faith to try and secure financing as opposed to using it as an escape clause. If a letter from the lender is not given to me then on a balance of probabilities I believe he's trying to break the terms of an enforceable agreement and as such would prefer to litigate since I am 100% expecting to win.
For legal topics and discussions, the opinion, guidance, and thoughts provided are my own and are not considered to be legal advice, in any manner.
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Jan 2, 2012
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angryaudifanatic wrote: The prospective buyers of one of my properties provided an offer subject to financing and subject to home inspection. The house in question is 1 year old and the inspector blatantly told me as he was leaving (we ran into each other) in front of the prospective buyer's agent and the buyer himself that the reason he didn't take so long was because it's a new home and everything is fine (obviously this is just verbal).

As everyone knows, entering into an agreement to purchase a house must be grounded with good intent and using an inspection/financing clause for anything other than the intended reason can result in litigation.

All that being said, I do not expect any qualms from the inspection aspect and my agent forwarded me the email during the offer phase indicating that the buyer in question was "fully preapproved". Now, that doesn't mean much because as everyone knows the lender still has to do an appraisal, etc, etc.

For reasons I won't bore anyone with, there is a chance that the buyer will try to get out of this deal, at which point I will not be signing the mutual release and will commence litigation. That said, I wanted to know if anyone here has ever actually seen a letter from a lender indicating that indeed the 'other party' was not able to secure financing. I suspect this never happens as the lender doesn't want to get involved with 'buyer's remorse' nor does this actually happen much. A broker may be in a tough position and thus have to secure financing from another lender at a higher rate - usually - if indeed this happens, but thought I'd gather some datapoints from fellow RFDers.

Thanks
The buyers are under no obligation to provide any such rejection letter, even if it exists. If they don't provide anything it would then be up to you to refuse the mutual release and sue them, and let the courts force them to prove how they attempted to get financing and that is was a valid reason to invoke the financing clause.

So if they try to back out the deal you can politely ask to see some proof that financing was the issue (i.e. lender rejection, acceptance only at rate above market, etc) in order for you to sign the mutual release and give their deposit back. You can tell them if you don't get any proof, you will attempt to sue them for both the deposit plus any damages you incur.

Before you threaten to sue though i would first talk to a good RE lawyer to know exactly what you'd be getting into.
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ssj4_ootaku1 wrote: THIS OFFER IS CONDITIONAL for Five (5) business days following acceptance of this offer upon the Buyer or his Agent being able to arrange satisfactory financing, otherwise this offer shall become null and void and the deposit money shall be returned to the Buyer in full without interest or deduction. This condition is included for the benefit of the Buyer and may be waived at his sole option


This is a typical clause. In there it says specifically, "satisfactory financing", as well as "condition is included for the benefit of the buyer"

You can sue all you want, you'd most likely lose, and be out thousands in legal costs.

It aint cheap to sue someone, or be sued. I've been through it, and spent countless hours as well as ~$25,000 of my money over 3 years.
All vague terms. In the end with no specifics in the contract, the buyer is expected to act in good faith to obtain financing. The clause it not supposed to be used as an escape clause for any reason unrelated to financing. Sellers have sued and won based on this.

If a buyer never attempted to get financing, or were approved at a competitive (to a reasonable person) market rate but said it wasn't good enough, a judge may very will find they acted in bad faith and award deposit + damages to the seller. As you said though, suing is not a cheap/fun process so the seller better be sure the buyers are indeed acting in bad faith.
Here it is also from a lawyer: http://www.garfinkle.com/News/News/RETH ... TIONS.aspx
[OP]
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rob444 wrote: If a buyer never attempted to get financing, or were approved at a competitive (to a reasonable person) market rate but said it wasn't good enough, a judge may very will find they acted in bad faith and award deposit + damages to the seller. As you said though, suing is not a cheap/fun process so the seller better be sure the buyers are indeed acting in bad faith.
Here it is also from a lawyer: http://www.garfinkle.com/News/News/RETH ... TIONS.aspx
Costs for small claims court (lawsuits up to $35K) in Ontario is quite low, although I recognize that I'm not the average Joe when it comes to knowledge of the law.

Personally, I am of the opinion that as long as the lender provides proof that they were denied (they don't have to give a reason due to privacy reasons) then I'm good with signing the mutual release. But if they suddenly went from "fully preapproved" as per the buyer's agent prior to putting in an offer to suddenly magically not getting financing despite being fully preapproved and can't provide proof, I'm not letting them go.

I'm not expecting that they now find financing with another lender, I'm simply expecting that they provide proof that their current lender is no longer providing financing.
For legal topics and discussions, the opinion, guidance, and thoughts provided are my own and are not considered to be legal advice, in any manner.
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angryaudifanatic wrote: Costs for small claims court (lawsuits up to $35K) in Ontario is quite low, although I recognize that I'm not the average Joe when it comes to knowledge of the law.
Would that then limit the amount of damages that could be awarded, to just $35K? In a failed home deal I imagine the total damages for difference in selling price to next buyer, court fees, lawyer fees, and any other expense that would occur as a result... could easily exceed $35K. If you are going through the hassle of suing you might want to consider doing so in Superior Court of Justice. A RE lawyer though can advise much better.
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May 12, 2003
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I'd honestly like to know how many of you guys have gone through a legal proceedings involving a real estate transaction.

I'd bet majority who've commented here haven't, and are just googling to find something that fits your opinion.

Go speak to a lawyer, and they'd laugh at you for holding the deposit. They would tell you that you have almost no chance of winning and to either just return the deposit, or return part of it.

I've gone through this personally and was a horrendous time of my life. I've also seen cases where buyers backed out of a "FIRM" transaction, and won in court because the judge felt the sellers "could afford to lose $50k", but the buyers couldn't.

Law isn't as crystal clear as you guys make it sound like.


ssj4_ootaku1 wrote: THIS OFFER IS CONDITIONAL for Five (5) business days following acceptance of this offer upon the Buyer or his Agent being able to arrange satisfactory financing, otherwise this offer shall become null and void and the deposit money shall be returned to the Buyer in full without interest or deduction. This condition is included for the benefit of the Buyer and may be waived at his sole option


This is a typical clause. In there it says specifically, "satisfactory financing", as well as "condition is included for the benefit of the buyer"

You can sue all you want, you'd most likely lose, and be out thousands in legal costs.

It aint cheap to sue someone, or be sued. I've been through it, and spent countless hours as well as ~$25,000 of my money over 3 years.
[OP]
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rob444 wrote: Would that then limit the amount of damages that could be awarded, to just $35K? In a failed home deal I imagine the total damages for difference in selling price to next buyer, court fees, lawyer fees, and any other expense that would occur as a result... could easily exceed $35K. If you are going through the hassle of suing you might want to consider doing so in Superior Court of Justice. A RE lawyer though can advise much better.
Well, do you want the technical answer or do you want the 'for all intents and purposes' answer? If one is filing in small claims court, then the max you can sue for is $35K. The awarding of costs is a whole different matter, but there is a limit of 15% (IIRC) for legal costs for each party wrt indemnity. The upside is the relative fast speed and ability for people to keep litigation costs relatively low and what a party may be 'on the hook for' if they lose.

That said one can also sue using the simplified procedure up to $200K for the Ontario Superior Court of Justice.
For legal topics and discussions, the opinion, guidance, and thoughts provided are my own and are not considered to be legal advice, in any manner.
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Nov 22, 2015
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Subscribing for the popcorn...

OP please keep thread updated with how much you spend vs. how much you win in court.

Thanks!
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Oct 21, 2014
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@angryaudifanatic What would you like to get out of this lawsuit? The real estate market is moving pretty quickly right now, would it be easier for you to just return the deposit and sell to someone else, and save yourself the hassle?
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Gungnir wrote: @angryaudifanatic What would you like to get out of this lawsuit? The real estate market is moving pretty quickly right now, would it be easier for you to just return the deposit and sell to someone else, and save yourself the hassle?
I imagine he is looking for at minimum the full amount of deposit.

If bad faith breach of contract can be shown in court, then court precedents show no damages need to be proven and seller should be awarded the full deposit amount. He could even re-list and sell the home for a higher price in the meantime, he woudl still get full deposit amount. Details and links to such cases here: https://canliiconnects.org/en/commentaries/67901

As to whether suing is worth it, that's up to the seller and how strongly they feel buyer acted in bad faith.
[OP]
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Nov 10, 2018
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rob444 wrote: I imagine he is looking for at minimum the full amount of deposit.

If bad faith breach of contract can be shown in court, then court precedents show no damages need to be proven and seller should be awarded the full deposit amount. He could even re-list and sell the home for a higher price in the meantime, he woudl still get full deposit amount. Details and links to such cases here: https://canliiconnects.org/en/commentaries/67901

As to whether suing is worth it, that's up to the seller and how strongly they feel buyer acted in bad faith.
Correct. Keeping the deposit is a given if bad faith is truly the cause of the souring of this deal. The deposit amount is $35K, which falls within the purview of small claims court. Sure, I can sue for additional damages if I get less than what the agreed purchase price was the first time around if/when I sell it in the future but that would require suing under the simplified procedure which is a bit more of a pain.
For legal topics and discussions, the opinion, guidance, and thoughts provided are my own and are not considered to be legal advice, in any manner.
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KanataKG wrote: Subscribing for the popcorn...

OP please keep thread updated with how much you spend vs. how much you win in court.

Thanks!
Yup, just getting a bag ready myself. OP offers conditions on financing and safety. Won't honour conditions, yet potential buyer is dishonest.
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rob444 wrote: I imagine he is looking for at minimum the full amount of deposit.

If bad faith breach of contract can be shown in court, then court precedents show no damages need to be proven and seller should be awarded the full deposit amount. He could even re-list and sell the home for a higher price in the meantime, he woudl still get full deposit amount. Details and links to such cases here: https://canliiconnects.org/en/commentaries/67901

As to whether suing is worth it, that's up to the seller and how strongly they feel buyer acted in bad faith.
I think the OP is a "she", just FYI...

C
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Jan 13, 2014
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So OP is going to sue the buyers because they *may* invoke a legitimate clause to back out of a deal? There is no cure for paranoia i suppose.
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Nov 22, 2015
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To answer the question... *If* the buyer attempted to get financing and was declined, it should be a rather easy to get a decline letter.

If you have a friend who works at a bank, it's also pretty easy to get a decline letter filled out and printed. They are standard fill-in-the-blank forms that just say they are unable to provide financing at this time.

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