Posted by Genkichan on 8/4/06 3:44pm
Msg #137146

Question for PAW

Would you please give me the legal reference to the federal law which states that lenders may not charge borrowers for any costs (such as appraisal fees, etc) associated with a loan if borrowers choose not to close their loan with them? I am referencing a situation where a buyer is switching lenders in the middle of the process of obtaining a purchase loan due to unique financing needs that the original lender cannot provide. Appraisal was already completed and that lender cannot provide financing based on the purchase contract terms. Is the buyer on the hook for any lender incurred costs?

Thank you. Vicki/MD

Reply by ReneeK_MI on 8/4/06 7:24pm
Msg #137188

Re: Not Paw by any means, but ... I'll give it a shot

First of all, I believe the law you're thinking of is in reference to rescinding a loan - Reg. Z of the TILA - and that wouldn't apply to this situation. They are not rescinding, nor do you have the right to rescind on a purchase loan.

Borrowers obtained and pre-paid an appraisal (standard industry procedure, btw), appraisal came in less than purchase price, lender can not lend more than the now-proclaimed value of the property. Correct scenario? I mean, is this the "unique financing need" you're referring to? That's a little different from the first sentence you wrote, saying "borrowers choose not to close their loan".

Perhaps these are your friends/family, and they're upset because they found the house of their dreams and can't get financing on it - but if what I surmise is really the case, they are truly being done a favor. If it won't appraise for purchase price ... there's some very, very good reasons. Good enough that the appraiser wouldn't do it. THAT doesn't happen all day long ...

The money paid upfront can either be called the "appraisal fee" or the "application fee" and I don't know of any law or sense of reason that would require the lender to refund money on that, for the reasons in the scenario I'm getting of this. This is WHY most of the time, this money is collected up front.

Reply by Bruce_CA on 8/5/06 12:25am
Msg #137203

Re: Not Paw by any means, but ... I'll give it a shot

What ever the case is, remember, that you can not advise them... That would be unlawfully practicing law.

I do beleive it is wise to know what the law is though!

Reply by PAW on 8/5/06 8:12am
Msg #137210

Vicki,

I'm not aware of any 'law' that says what is refundable and what isn't, except some fees associated with the loan itself when the borrowers rescind. (Title 12, Reg Z)

However, there should be a brokers contract or lender's agreement that they signed which spells out what fees may be refundable. Typically, appraisal fees (application fees, and some other fees) are not refundable. If they were, brokers, originators and lenders would go out of business since 80% or so of the applications processed do not result in a closed and funded loan.

So, to answer you question, "Is the buyer on the hook for any lender incurred costs?" Yes, most definitely. Again, this is an arrangement that should have been set up prior to 'working' the loan.

Reply by Mike Photon on 8/5/06 12:35pm
Msg #137246

PAW has a way of answering questions simple and to the point.
Thank you for the wealth of knowledge you share with fellow notaries everyday

Reply by Genkichan on 8/7/06 10:00am
Msg #137430

Thanks for responding. I thought for sure I read somewhere that lenders cannot charge borrowers for anything if a loan doesn't close, regardless if it's a purchase or a refinance. I've had one or two personal experiences of applying, but not going through with, a loan, and I had always gotten my money back, or was not charged for the appraisal.

In this case, I'm selling a property on some weird buyer--proposed financing terms (huge seller rebate so they could put on a new roof with the cash back), but the lender won't go for it. I'm not 100% sure that the appraisal has been actually done or not, but they claim it has been. I'm inclined to execute my option to cancel the contract because some better purchase offers are now coming forth. If buyers can't get financing based on their proposal, then.....that's my right. But they are really upset about costs they are supposedly incurring (appraisal fees) with original lender. IMO, if the lender didn't like the purchase contract terms, they never should have ordered an appraisal in the first place, until a revised contract arrived in their offices (which I never gave them). I just don't see how the buyer would be on the hook for the fees in this case. Oh well, whatever happens....so goes the world! Thanks for your input, though. I appreciate it.

Reply by Poppy on 8/5/06 10:50am
Msg #137220

Appraisers will transfer the appraisal to the new lender for a small fee (usually no more than $100.) Provided that the borrowers have paid the appraiser for the original appraisal. If the lender paid for the appraisal and will be charging for the appraisal at COE you can usually get the lender to okay the change with the appraiser by paying the lender for the original appraisal...
This way everyone is happy... Or at least somewhat happy.... Good Luck

Reply by MelissaCT on 8/5/06 9:20pm
Msg #137291

Re: Transfer of appraisal - Poppy

That may depend on what state you're in. I've been told that a lender doesn't have to use a previously done appraisal (this is for CT). Rules have recently changed here -- my understanding is that a lender/LO can't even talk to an appraiser. Used to be they could suggest the amount needed to qualify the loan...of course, this is heresay & my opinion based on what I've been told during my most recent personal refi...