Expert: Dick Dennis - 7/31/2008

Question
This has a lots of twists and turns, so I hope you can follow me!  We, the sellers, have been under contract ("REPC") with our condo in Utah since June 24th, 08.  We were scheduled with inspections and appraisals but were surprised to find out that our condo was not yet FHA approved (July 7).  Canceling those, the FHA asked the buyers lender to do the work to get that approved (that she passed on to the HOA- which did nothing, so my husband and I put it all together).  We extended our deadlines until "after the FHA approval."  Her intrest rate lock expired this last Saturday (July 26) and to our understanding she was going to just apply for a new loan and maybe even get a better interest rate that way.  She did want us to pay $25 a day to hold her rate, but we rejected.  One Monday (July 28) we became FHA approved and that is when she signed an addendum requesting her Earnest Money back in full immediately because she was rejected for her loan.  We asked for a "Notice of Loan Denial" and she sent us "Statement of Credit Denial, Termination, or Change" Stating her credit had been denied because of Excessive Obligations- Innsufficient Income for Total Obligations.  Then at the botton it states "The subject proberty was not approved by the FHA and while waiting for the annexation to happen the rate lock expired.  As of this date (July 28, 08) [the lending institution] has NOT been notified by the seller of a completion date for the annexation.  The denial is due to losing the interest rate lock on the property."  

What do you think??  We have had the condo off the market for over a month and have lost potential buyers.  My belief is that she did not work diligently to obtain a loan.  I also do not think that the credit denial checklist is sufficent for a notice of loan denial.

Answer
This is what I would do, Kati: I would say, "Hold it! Let's start this ballgame all over again. Ms. Buyer, we still want to sell this condo. The condo is now approved by FHA. Do you still want to buy it?"

If she says no, then give her back her deposit and start all over again, since you say you may have lost some potential buyers. The ramifications you'd encounter by not returning her deposit would make it very difficult for you to find another buyer. Take my word for it.

I wish you well.

Dick Dennis