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GFE and lock-rate agreement with "wrong" info binding ?

Here's some info (hypothetical, sort of):

1) Borrower asked loan officer to lock rate and points on 10/11/09 at 4.5% for 2.5% points. Borrower shops around and finds out that's the best rate and decides to accept the GFE and apply for loan with this loan officer. They schedule to meet 10/15/09 for sign loan apps and other docs.

2) On 10/15/09, Borrower meets with loan officer and notices that the points were different from what the loan officer originally quoted. To his advantage, it was 2.0% instead of 2.5%. Borrower pointed it out to the loan officer and he said his computer shows it was locked at 2.0% so borrower proceeded to sign all documents (including lock-in agreement) which showed 4.5% at 2.0 points.

3) On 10/16/09, borrower drops of 0.5% deposit for lock & float agreement which allows the borrower to "float down" to a lower interest/points if the market improves before the loan closes. Loan officer meets with borrower and says there was an error in the loan documents and that the original 2.5 points was the correct one, not 2.0 points. He had a re-printed GFE and lock-in agreement showing 2.5 points and asked the borrower to sign. Borrower did not sign because he felt the original was binding.

4) Borrower and loan officer go back and forth about the points.

5) On 10/19/09, loan officer said that he will honor the 2.0% if borrower agrees to use that change as his "float down" option. Buyer said yes because he wanted the issue resolved and not hold up the 30-day close.

6) Interest rates kept going down. On 10/31/09 (3 days before closing), rate/points were 4.5% at 1.375 points. Borrower contacted loan officer, as advised by friend, and said that he still had his float down option because he legally had 2.0 points and didn't technically have to float down. Because he thought that he was still entitled to his float-down, he asked the loan officer to float down to 1.375 points. Officer refused.

7) Closing docs had to be signed on 11/4 in order to meet Closing Date of 11/9/09 and borrower could not extend Closing Date without breaking the Purchase Contract and 30-day lock commitment. Borrower reluctantly agreed to sign the closing documents with the disputed points of 2.0 points.

Questions are:
1) Are the GFE and lock-in agreement that the borrower signed legally binding and does it entitle the borrower to the 2.0% points?
2) Did the buyer still have a right to exercise his float down option on 10/31/09?
3) If yes to 1 and 2 above, should the borrower ask for a refund from the loan officer for the difference between 2.0 points and 1.375 points? What should the borrower do if the loan officer refuses to refund?

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

borrower said "yes" in paragraph 5 to the float-down issue - who cares why. i think you sank this float-down ship with the "yes."

a good faith estimate is always and forever an estimate. you cannot hold firm to anything on that document. a lock-in agreement, however, is firm and needs to be upheld. verbal agreements aside, what you've signed and agreed to in writing need to be paramount.

you are asking the loan officer to give back .625% of the loan amount. that's a pretty fair chunk of change. worrying about what rates are almost 2 weeks after locking in is a form of buyer's remorse that i suppose is unavoidable, but kind of shameful too. when you agreed to lock in, you agreed to lock in; your subsequent agreement to the change from 2.5 to 2 points sewed things up, but now you want an additional .625.

you can't eat your cake and have it too. your loan officer was put in an impossible position with the dropping of the rates. why are loan officers supposed to work for peanuts, anyway?

Like | Dislike | Share | Posted: Wed, 11/18/2009 - 20:22

sonja.k.racine's picture
sonja.k.racine | Joined: October 24, 2007 10:28 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

There are always two sides to the story, and I am choosing no sides.
Your 3 questions :

1) GFE is not a binding contract, because there may be things that come up during the process that can actually change your rate and points. For example- I know you were doing a purchase and typically this occurs in [url=]refinance[/url] transactions- if the property did not appraise out and the loan to value is higher, it can change the rate.... as far as the lock in agreement not seeing it I cannot comment. But there again it's not all done until you sign the closing papers. Just like you can walk away from a transaction the bank can too.

2) No , sounds like you agreed to a float down in your #5 point, doing it again would be another float and another fee. It does not sound like you were willing to do this and if you had you would have wound up paying 2.375 in points and float down fees.

3) Not going to happen, you are asking the loan officer to come up with the money out of their pocket at this point because most of what was collected went to the mortgage company and not directly to them. In essence once you signed the closing papers you agreed that they were accurate.

Your #7point may be the real downfall you should have asked for an extension on the purchase contract AND if you did a float down they you would have gotten a new lock in period. I'm sorry that you had this experience but I do not know how you can change anything at this point since you singed everything in agreement. Your only recourse may be to contact the branch or area manger of the company to try to resolve the issue. I imagine while they may sympathize, a refund would not be issued but it's worth a try.

Like | Dislike | Share | Posted: Wed, 11/18/2009 - 20:18

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

What a wonderful way to end a comment..."you will get ripped off but at least you can minimize the damage." Not every lender in every state is a thief - that's just an easy throwaway line from someone whose attitude has obviously been skewed by some unfortunate incident.

First time homebuyer programs in one state won't afford a person a loan in another state, so that reference to going out of state certainly won't work either.

Great job, Guest.

Like | Dislike | Share | Posted: Tue, 01/25/2011 - 13:16

masthan14's picture
masthan14 | Joined: November 18, 2009 09:03 pm | Posts: 0 | Location: New Jersey | 00 Dollars($)

There are programs available to assist firsttime home buyers in obtaining a loan. Talk to your lender and do some research of your own to discover the best ...

[size=9:3f9bd1977f][color=Red:3f9bd1977f][External link deleted as per forum rules][/color:3f9bd1977f][/size:3f9bd1977f]

Like | Dislike | Share | Posted: Wed, 11/18/2009 - 21:05

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

yes, indeed, virtually every state has a first time homebuyer program, most of them providing more favorable interest rates and features that cannot be found on conventional or fha products.

Like | Dislike | Share | Posted: Thu, 11/19/2009 - 09:00

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

They are all thieves, you need to turn them on each other.
Get comparisons and shop around for months not weeks.
Go out of state if you have to. You will get ripped off but you can at least minimize the damage.

Like | Dislike | Share | Posted: Mon, 01/10/2011 - 11:01 | Post subject:

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

Thank you for all your comments!

Like | Dislike | Share | Posted: Tue, 11/24/2009 - 21:56

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