Expert: Todd C. Menard - 12/18/2008

Question
We are in Southern California and are trying to buy a home. We found a house we thought would work for us and made an offer which was accepted. We really wanted to use our credit union for our lender, as we have extensive history with them and feel comfortable with them. The real estate agent we are using seemed at first to be very helpful and on our side, however through this process, we have felt that he has not operated in our best interest. He continually told us that while we "have the right to use whichever lender" we want, that if we went with our credit union, we would lose the house. Through much pressure and (i feel) strong arming, we finally agreed to go with the lender he wanted us to (we found out later that the realtor, the lender, and the person handling escrow, were all in-house... not independent as we had originally been told). After signing all the appropriate papers, transferring our down payment to escrow, etc., we were told escrow would close in a few days (this was the first week of November... and the reason we "had" to use their lender was because if we didn't close by the 31st of October, the seller was going to back out, according to our agent, and his lender could deliver the close at the end of October, and our credit union would not be finished until the first week of November!) As it turned out, the other lender couldn't complete everything by Oct. 31, either! Also, ouir credit union was offering us a loan with an interest rate that was almost a full percentage point below the other lender, and our closing costs with our c.u. were going to be about $3000 less! By the 2nd week of November, we were notified that the first lender backed out because there was some issue (we still have not been informed of the exact nature of the issue... only that it has since been "resolved") with the deed to the house. At this point, we contacted our credit union and asked if they would continue the loan process since that is who we really wanted to use in the first place. The agent told us that his broker at the mortgage company was applying for a new loan through several other lenders. We notified both of them in writing that we were going to use our credit union and to discontinue pursuing a loan through any other sources. They went ahead and submitted a new loan to escrow through their new lender after we asked them not to (all the while he continued telling us we could "of course" use whatever lender we wanted). So my first question is can they submit a new loan from a new lender, when we specifically asked them not to, and when we have not signed any new loan docs and we do not even know the terms the new lender was offering?
Meanwhile, there had been an appraisal done of the house, which appraised it about $25,000 higher than what our offer was. Initially, our credit union agreed to go ahead and accept that appraisal, however do to the behavior of our agent, the asset manager, the mortgage broker, and the escrow manager (requested docs, etc. were not provided to our credit union in a timely manner, promises to us from our realtor that if we went with our credit union, the seller would back out and so forth), our credit union became quite concerned that there may be something about the house that was not on the level. This continued behavior convinced our credit union that they should have a new appraisal done. Repeated requests and calls trying to arrange access to the house for the new appraisal were completely ignored (I believe in order to stall our completion of the loan with our credit union) and we were once again told that if we did not sign the papers with their lender, the seller would back out. We told him we were going to use our credit union anyway. They then told us that we had 24 hrs to sign the docs with their lender or forfeit our earnest money. We told them we wanted to use our c.u. Then we were sent paperwork to sign stating that we cancelled the deal and we now were supposed to agree to pay a $530 cancellation fee, on top of forfeiting our $1000 earnest money. We didn't sign it because we don't feel that we canceled and we didn't agree with giving up that money. We got a phone call threatening to sue us, next. Then we got a phone call stating that we had until 5pm the next day to sign docs with OUR c.u. That was impossible, because they never let our c.u. get in to do an appraisal. Well... the seller would not be willing to wait another week for us to complete the new appraisal, etc. so we did nothing. On monday, we decided it was no longer worth the hassle and anguish, they could keep the $1500, we just wanted our down pymt money back out of escrow so we could look for a new house. So we signed the cancellation papers and mailed them Monday night. Tuesday, we got yet another call stating they were going to give us ONE MORE chance to sign with their lender and take the house and we'd better do it or the seller would be taking all of our money in escrow (approx. $26,000 or so) from us and would keep it tied up in legal battles for the next 5 yrs. My next question is, we thought they couldn't hold our escrow money... only our earnest money? While in my heart I believe (because there have been so many "ultimatums"), this is just another empty threat... we are terrified of not having access to that money and possibly even losing it altogether! We also have become more and more convinced (at the risk of sounding paranoid) that there IS something hinky with the house because they keep trying to get us to sign for it! We don't know if we should sign the loan docs with the lender we don't want... or will we lose all our money...or will we end up with a house that has serious problems... or what!!!! By the way, today we called our c.u. and asked them if there was any way they could do an appraisal and push through the paperwork quickly so we could close using them, and they told us they will loan us money for any other house, but absolutely not would they do ANYTHING with this house from here on out because of everything! Any suggestions, insight, advice, etc that you could possibly give us would be so greatly appreciated!! Thank you! Laura

Answer
Hello Laura - I am sorry for the late reply. There are so many issues here that this reply will be exceptionally long. Let me state two obvious and immediate recommendations. First, I recommend immediately contacting a real estate attorney to learn your rights under CA law, Second, I suggest writing a letter to the title company (who is suppose to be acting as a neutral party)instructing them that you are in the process of seeking legal counsel and instructing them NOT to release the earnest money or any other monies 'not pledged' as earnest, to the seller. Next, with the understanding you have e-mail or written documentation of the instructions you have received by the real estate agent throughout this transaction, you should immediately file complaints with the state's departments that license real estate agents and loan officers. There is also information on http://www.hud.gov that will also provide a link to reporting mortgage fraud and predatory actions of lenders and loan officers. This may also be a situation of "public trust" that the State's Attorney Generals office might find interesting. In addition, the National Association of REALTORS Code of Ethics has a number of articles that stipulate a standard of practice that all member of the NAR must adhere to. Many of which you have addressed in your question. (http://www.realtor.org/MemPolWeb.nsf/pages/COde) Finally, contact your local television station editors... I would imagine the local stations have consumer protection and investigators similar to in AZ (Turn To 10TV, TV3 on Your Side, etc) and explain the immediacy of their effort to your potential loss of down payment money as well as the scheme that might be being used to 'harm the public' in your area of coverage. Usually they will assist in a timely fashion and provide the situation with significant exposure that promotes the return of your money. There is no answer to your question that would supersede the recommendation to seek legal assistance ASAP. The actions of the real estate agent, loan officer and title representatives does indicate questions of performance and the standard of care. Your liability should be only limited to the amount of 'earnest money' you deposited with title. Unless otherwise mentioned in the contract you signed you should not have pledged the additional down payment monies you deposited in escrow and therefore escrow is obligated to return those monies. This is true regardless of the cause, or who caused, the deal ending. But you must send a letter immediately to escrow instructing them to return your non-earnest deposit(s). I think your C.U. lender may be acting outside its area of its expertise by advising you to do anything but seek legal advice. They may have been trying to protect you but should realize providing legal advice is reserved for attorneys. I am also not an attorney, and this is not legal advice but rather real estate advice any professional REALTOR should be able to provide. Please reply if you need further information. - Todd C. Menard