I went to the closing table to close on a HUD foreclosed condo. I was signing papers and found to my surprise a 20% pre pay penalty for 3 years. This is not a “soft” pre pay. I have worked with the same mortgage broker in the past and have done 3 loans with him since January. He is well aware that I don’t like prepays, but that I would the soft version. My plan was to sell the condo in one year, lease option.
I left the table and at that point decided that perhaps it would be best to pull out of the deal, since this was the third attempt at closing, 2 other times were the fault of HUD and the settlement company-I’ve been working on this project since April. I was getting a bit freaked at this point, thinking it may not be meant to be.
So, I contacted the owner of the mortgage company to explore my options-would they refund to me the money I would be losing if I pulled out of the deal-$1000 hand money (cash) to HUD, $275.00 for an appraisal, and $68.00 inspection. Not to mention advertising money I had spent each time I thought the deal would close. (definately learned something in that department!). The conversation got heated and the owner, who is hot headed I have learned since, (and so am I–bad combo)withdrew the loan. I did not tell her to do so.
So now, if I want to continue the deal, as I hate to lose money, I need to go through the entire process again which I’d rather not do at this point.
Question-do I have a case against this broker? Can they be made to refund my loses? Are there any boards I can contact-Pennsylvania.
I know the frustration of showing up to closing and get some surprises. Unfortunately, the basic fact is that you declined the loan becuase you did not like the terms. The fact that the broker may not have disclosed the terms or you missed something in the fine print somewhere or whatever is not going to change anything. Yes, there are rules about disclosure, etc but trying to make a case out of it is not going to get you anywhere and cost you far more time and money than you have spent. While it will definately leave a bitter taste in your mouth, just move on and focus your time and energy on your next (fruitful) deal. This one sounds like its dead.
How was the prepayment penalty written? Did the penalty only apply if you refinanced the property, or also apply if you sold the property?
Why didn’t you ask your mortgage broker to get you another loan, or ask him to work with the “investor” for that loan to change the prepayment penalty to only one year? Even at the settlement table, some conditions of the loan can still be negotiated.
The pre-payment penalty was for a sale or a refinance, didn’t matter. My mortgage broker was well aware of what I would accept and what I wouldn’t, so this was very much a surprise to me. We had talked about this in length on other occasions, I had done 3 other loans with him this year. So, yes, I was upset with him. He said he didn’t know about it until we were at the table. He got on the phone with the lenders and they wouldn’t change it on the spot. So I walked out before I blew up…took the weekend to think about it.
The whole thing was just very frustrating to me, as I said this was the third attempt at closing.
My questions is, do I have a case against the mortgage company for withdrawing the loan without my consent?
It sounds to me that you refused to close. I don’t see that the lender has any duty to you once you walked away from the settlement table.
If your attorney tells you something different, please come back and tell us.
I fault your mortgage broker here. If the broker had used your no-prepay-penalty requirement to screen the loan products that would meet your need, you might not have found yourself in this situtation in the first place. Surely the mortgage broker works with many other investors and funding sources and should have been able to put another loan in place for you, provided you could get an extension from HUD.
I missed the part about the loan being withdrawn, but my answer remains the same. You still have no case. You failed to signed the documents and you got into an arguement. As for the latter matter, regardless of who started it or what was said, it is very difficult to force a vendor (the lender) to do business with a customer (you) with whom they do not wish to conduct business.
If you REALLY want to pursue this, you could make a claim in small claims court (fairly cheap to do), but I think you will not get anything out of it and jsut waste a bunch of time and money. BTW, even if you do win, you still have to collect.
Go find your next REI deal and pursue it will vigor; you will make your $1500 and more
Given the fact that I work in the mortgage industry I can tell you that it is required by law to disclose to the borrower ANY type of pre-payment penalty on a loan. The fact that you walked away from the closing table does not entitle the mortgage company to withdraw your file. Unless you specified in writing that you did not wish to continue the transaction the mortgage company did not have the right to withdraw your file. In fact they are required to send you written notification that your file has been withdrawn and specify the reasons. Generally, these letters of withdraw/declination are based on credit, borrowers not qualifying, etc. I would speak with the banking commissioner in the State where you live as well as the better business bureau. Mortgage companies must abide by very strict guidelines, and for good reason! Best of Luck…
The mortgage broker knew when he priced the loan for you if there was a pre payment penalty on that loan. The pricing matrix shows the different yeild spread premiums paid to the broker depending on the rate that you recieve. Also if the Truth In Lending Disclosure says that there was not a pre payment when he locked the loan for you and you get to the table and it is different…The broker has big problems if you report him. IE…Truth In Lending!
If you can get hud to extend this for you then you may have time to restructure a new loan.
Good Luck
Edge
You’ve been great with all the responses. I really appreciate it.
Well, the saga goes on. I did receive an extension from HUD and am working with a different broker trying to get the deal to close. I have learned that a broker can receive additional points from a lender, = more commission, if that broker puts a prepayment penalty in the deal. Perhaps since it was such a small loan, $53,500, they felt they needed to get paid more somehow. Milo, can you give me some insight into that?
Is it too much to ask to work with honest people with integrity? It’s the lying that really irks me…the broker maintains he didn’t know about it. Sounds like crap to me! I’m just sorry it happened this way, really has put a damper on my enthusiasm for real estate.
After reading the response from edge, I contacted my favorite mortgage loan officer who works for a large bank. He showed me his bank’s rate sheet that gave the interest rates, and points charged for each rate, for each loan product type offered by that lender.
I noted that the matrix did specify interest rates and points for ARMs with a 3 year prepayment penalty, as well as for ARMs without a prepayment penalty. I commented to the loan officer that the lender’s margin for a prepayment penalty ARM was greater than the ARM without a prepayment penalty. Seemed backwards to me, but I am a much better informed consumer now.