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Backing out before closing?

Hello, I was wondering what a person has to do to back out of a loan before closing. We put earnest money down and signed papers, but do not clos until next month. I doubt we will back out but some things have come up and just wanted to know where I stood.
Thanks, Scott

livinginnky's picture
livinginnky | Joined: September 8, 2007 08:31 pm | Posts: 0 | Location: New Jersey | 00 Dollars($)

What things have come up?

If you mean backing out of the purchase contract... then it depends on what stipulations are in the contract itself. You are never bound to a mortgage until closing, not a second sooner. However you do have an obligation to a purchase contract depending on the situation.

Please clarify exactly what it is that has changed to make you want out...and I will try to help you from there.

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jameshogg's picture
jameshogg | Joined: December 20, 2005 02:58 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

Yes Eric, he's not bound until the loan closing occurs.

Well Sahargen, you may read through the previous discussions on backing out prior to closing at:

http://www.mortgagefit.com/know-how/backout-beforeclosing.html
http://www.mortgagefit.com/know-how/preclosingbackout.html

Thanks

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lisa.scherzer's picture
lisa.scherzer | Joined: January 4, 2008 08:48 pm | Posts: 0 | Location: New Jersey | 00 Dollars($)

Hi Scott,

Was it something that changed on your approval with the lender? If so you can use that to back out of the contract. If not, there are usually enough stipulations in the contract to get your earnest money back if you decide to back out.

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gmakerley's picture
gmakerley | Joined: November 9, 2007 07:36 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

you may face the loss of your earnest money deposit. if you have engaged legal counsel in connection with the purchase, you may be billed for the work done. if you have been working with a realtor, you may be billed for services as well.

my rationale for all of the above is a deal that fell through last summer. my borrowers (immature first-timers) backed out 4 days prior to the scheduled closing date. obviously, we loan officers suffer and cannot bill for services rendered. their attorney and realtor both planned (don't know if they followed through) to bill them for their services. i honestly don't know if they forfeited the earnest money, but that was, of course, possible per the contract.

amazingly enough, the property in question popped up again with a new borrower for me in the fall. so even though i lost the deal with my original borrowers, i ended up closing a loan on that house with different borrowers in december.

bottom line: if you back out of your deal, be aware of the possible consequences.

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Anonymous's picture
Anonymous | Joined: June 8, 2004 01:06 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

Hi everybody, Thanks for the replies!
The reason for this post is kinda complicated. We aren't having any problems with the lender. The problem is a combination of cold feet by me and we are having a few minor issues with the sellers. I don't want to get into all the details on here but I appreciate the feedback. I was just looking to figure out my options...I'm 98% sure that we will go through with the sell...but there is that 2%..... Thanks again, Scott

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gmakerley's picture
gmakerley | Joined: November 9, 2007 07:36 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

glad to help, scott.

and that is precisely what the intent of this forum is, anyway.

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livinginnky's picture
livinginnky | Joined: September 8, 2007 08:31 pm | Posts: 0 | Location: New Jersey | 00 Dollars($)

If it is cold feet.... that is not a reason that the law protects.

If the seller has misled you or you have a contingency for the inspection and the inspection was bad... then you have a way out.

But again if you have a purchase contract and you have no legitimate reason to back out besides..."We changed our minds" ... be prepared to lose your earnest money at minimum (as stated above). The sellers could force you to purchase it (very unlikely I would assume).

What it comes down to is this...

When you have an accepted purchase contract.... the seller can no longer market or accept contracts from anyone else... so while you are "deciding" they could be selling to someone else. Since you have a contract the "decision" has already been made... the house is yours if it closes.

So you see it isn't like going shopping or buying a car... if you tell the car dealer you want to think about it and someone else comes in... they sell the car to them... in real estate the seller can't just change the deal and sell to the new buyer... they have to wait for you.

Let me know if you have any questions. P.S. I am not trying to give you a lecture although that is what it is. You have an obligation to the seller and vice versa them to you.

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gmakerley's picture
gmakerley | Joined: November 9, 2007 07:36 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

eric, plain speaking is what is needed in life in 2008. we have all been coddled, and people are afraid to confront issues on a continuing basis. this has caused an attitude of entitlement with many people. as soon as someone steps out and decides to buy a home, it seems, that home should be 3000 square feet with 3 or 4 bedrooms, 2 baths or more, 3-car garage, etc.

"starter" homes are now seen as decrepit and meant only for the downtrodden, it seems. even the normal first-time homebuyer who has little, if any, money and (perhaps) challenges on credit seems to think there is an entitlement to 100% financing at the lowest rate ever offered.

thank you for your frankness and not-so-stern lecture here. it is so necessary these days.

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Anonymous's picture
Anonymous | Joined: June 8, 2004 01:06 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

i was all ready to but this house. we agreed on a 12pm closing. then the seller said they couldn't be out on time. this made me mad because they have known for two months. then the day before closing the seller said they didn't have enough for closing. this infuriated me. so i cancelled the moving extended my apartment lease changed back my address. then later that night i found out her agent was willing to lend her the money. by this point i had enough. i don't want to go through with it now. but her agent has informed ne that if i don't go through with it i could face legal issues

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gmakerley's picture
gmakerley | Joined: November 9, 2007 07:36 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

i understand your frustration with this process. unfortunately, in the last year or two we've seen this scenario pop up a lot. sellers seem to forget they owe a certain amount, and they then either forget to notify or simply neglect to notify their agents, their lawyers, etc.

if this is a home that you really wanted, i'd suggest you reconsider backing out. speak with your lawyer, to see what penalties you might incur at this time by doing that, also. you don't need to lose money in this process if you can help it, but of course your piece of mind and happiness is paramount.

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Anonymous's picture
Anonymous | Joined: June 8, 2004 01:06 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

Seller backed out after we signed her counteroffer on a property. Is this legal. She signed we signed we were set to go. I knew purhcasing a home would be difficult but man has it been a ride!

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gmakerley's picture
gmakerley | Joined: November 9, 2007 07:36 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

christina, have you engaged an attorney to assist you yet? you may want to discuss this with one in any event.

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Anonymous's picture
Anonymous | Joined: June 8, 2004 01:06 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

Yes we had the attorneys from century 21 speak to the lady and thank goodness it has all been solved. I guess aparently after she counteroffered with us a friend of hers offered to purchase her home and legally she cant do that - is what we were told... thank you for your response!

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gmakerley's picture
gmakerley | Joined: November 9, 2007 07:36 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

thank you for reporting back to us, christina. your experience may very well help someone else in a similar situation, and that's, of course, what we hope for with all of the information sent back and forth in this community.

i'm happy to know the situation got settled in your favor.

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Anonymous's picture
Anonymous | Joined: June 8, 2004 01:06 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

is marriage separation a matter/reason the law protects for backing out of purchasing a home prior to closing?

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jameshogg's picture
jameshogg | Joined: December 20, 2005 02:58 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

Hi Guest,

You can definitely back out from your loan transaction prior to closing. However, once you do so, you will not be compensated for any money you've paid out to the lender.

Thanks

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gmakerley's picture
gmakerley | Joined: November 9, 2007 07:36 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

it's a pretty good reason, but i agree that you better not expect to get any money back - from bank or seller...and that probably includes your earnest money deposit. you'd better fight for it. better that you not back out, but advise your lender and see if they'll subsequently deny the loan request. that way, you'll stand a better chance of getting a deposit back.

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Anonymous's picture
Anonymous | Joined: June 8, 2004 01:06 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

want to buy house but want to change mortgage brockers to someone we know better. we need to know if the credit union we started with would charge a fee for starting our paper work but being cancled before closing

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Anonymous's picture
Anonymous | Joined: June 8, 2004 01:06 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

As far as I know, you will be able to change the mortgage companies but as you would be canceling the paperwork just prior to the closing, I guess the credit union may charge you fees. You should get in touch with your credit union and negotiate with them in this regard.

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Anonymous's picture
Anonymous | Joined: June 8, 2004 01:06 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

My husband and I decided to buy our first home a couple months ago. After looking for a while we found one. Since we were pre-approved for a mortgage it was fairly easy getting the ball rolling. The sellers accepted our offer, (which included them paying for a termite inspection) and we set a closing date. In that time frame my husband lost his job and had to seek new employment. This changed our loan approval and the deal fell through. Now the seller is wanting the earnest money, money for the termite inspection, and the abstract. Our real estate agent said the earnest money is ours but since the seller is a lawyer she is worried he might sue us for the rest. Can he do that? We didn't back out of the sale, it fell through due to no fault of ours.

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gmakerley's picture
gmakerley | Joined: November 9, 2007 07:36 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

Anyone can sue anyone else at any time for any reason - that doesn't mean that the lawsuit will be successful, however. You need to be aware that the lawyer/seller is probably simply trying to scare you into paying more than you ought to pay. If you were denied your loan due to your husband's job situation, you ought to get your earnest money back. The rest of the money is up in the air, but I suspect you won't have to be responsible for that either (simply my opinion, and not a statement based on legal knowledge, mind you).

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Anonymous's picture
Anonymous | Joined: June 8, 2004 01:06 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

if the points for a loan that I requested have since dropped whereas the cost of the interest rate is now $2,000 less than I locked, can I cancel the loan? any costs or fees that I may incur? :)

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jameshogg's picture
jameshogg | Joined: December 20, 2005 02:58 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

Hi Mike,

You can cancel the locked rates. However, you may lose the amount that you may have paid for rate lock. The lender may not return that price to you.

Thanks

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Anonymous's picture
Anonymous | Joined: June 8, 2004 01:06 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

we have put down a deposit on the home but are loan has not been all the way approved yet but now not sure if we want it can we back out and get are money back we have paid for an apprasial on the home thanks

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jameshogg's picture
jameshogg | Joined: December 20, 2005 02:58 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

Hi nicole,

You should contact your lender and inform him that you want to back out from the deal. It will be the lender's discretion whether or not he will refund the money you've paid him.

Thanks

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Anonymous's picture
Anonymous | Joined: June 8, 2004 01:06 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

hi we are in the process of buying a home its in escrow we applied for 2 credit cards but was declined will are house loan still go through

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jameshogg's picture
jameshogg | Joined: December 20, 2005 02:58 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

Hi bre,

When you had already applied for the house loan, you shouldn't have taken the risk of applying for credit cards. You could have applied for credit cards after the loan closing. There is a still a chance that you may qualify for the loan as your application for credit cards have been declined.

Thanks

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Anonymous's picture
Anonymous | Joined: June 8, 2004 01:06 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

The City forced us to cut down a large diseased dead tree which the buyers were fine with, but in so doing the arborist had to remove two smaller adjacent trees because they shared the same root system. The buyers are planning to tear down the house and rebuild and actually we spared them the huge expense of cutting down the tree 8 days before closing. Can they legally back out of the sale. They put down $100,000 in ernest money.

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smith.sussane's picture
smith.sussane | Joined: September 18, 2008 09:57 pm | Posts: 0 | Location: New Jersey | 00 Dollars($)

Hi Anne!

Welcome to forums!

If the sale hasn't yet taken place, then the buyers may back out of the sale.

Sussane

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Anonymous's picture
Anonymous | Joined: June 8, 2004 01:06 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

A buyer signed a contract on our house. He was preapproved financially. It was contig. upon inspection. Inspection went great. Appraisal went above asking price. The issue of flood insurance came up. We have never had flood insurace required so this surprised us. We had a flood cert. done on the lot. The surveyer forgot to list the BFE for the flood Cert. So the insurance quotes came back high. We had a second Cert done with a Base Flood Elevation done. That came back with a low risk flood policy of under 400.00 per year. When the buyer first caught word of the flood requirement he agreeded to have some flood insurance. He later changed his mind and wants to walk. We told him we are going to file a LOMA on the lot to free it from insurance at all. He wanted a for sure on the LOMA. When we called FEMA they told us if our numbers came back above Base Flood Elevation we would get the LOMA. The buyer has decided to walk . Is he aloud to walk?

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adonis's picture
adonis | Joined: October 22, 2005 05:04 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

Welcome Ramona,

Your query has been answered in the given page:
http://www.mortgagefit.com/inprocess/about55058.html

Please take a look at it. I hope it will help you.

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Anonymous's picture
Anonymous | Joined: June 8, 2004 01:06 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

Hello, because of an error from the mortgage company we did not get funding on the loan before end of the day on the closing date. The builder has decided to charge us 75.00 $ a day until closing and has also put the house back on the market but all of the closing papers have been signed. Is this legal?

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jameshogg's picture
jameshogg | Joined: December 20, 2005 02:58 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

Hi kell,

If you have signed an agreement with the builder stating the same, then he will be able to take this step. You should contact the lender and ask him to complete the closing formalities ASAP so that you can take possession of the property.

Thanks

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