Expert: Lori Frankfort - 6/3/2010

Question
Hi,

We have signed a contract to buy a single family home. We never removed loan contingency and we asked extension of loan contingency time deadline twice (after 17 days), each time asked for one more week. First extension, we have seller signed and second extension, the seller did not signed for extension.

The loan have been denied by lender the last minute before the close. We sent cancelation letter to seller to cancel the deal at the day, which is the last day of second extension of loan contingency. The reason the loan has been denied is that we had refine our current house last year in Oct. And the same loan officer is doing the new purchasing loan for this new purchasing house. The loan officer is using the same lender and she did not know one agreement states "Occupy the current house for 12 months" before we can buy new house. The loan has been approved really quick (in three days after we singed the house pursches contract) and we submit all the materials the lender needs, but after about 1 month until the last minute, the lender denied the loan. Because we never remove the loan contingency, we send cancelation letter to seller and ask the deposit money back, but they said that they can keep the deposit because of the loan officer's fault.

Can you please tell me if we can have our deposit money back in this situation?

Answer
If you definitely have your loan contingency in tact, then you should receive your full deposit back regardless of the reason you didn't qualify.  Call your escrow company, and then fax them a letter explaining you want to cancel escrow.  If the Sellers refuse to cancel escrow you will have to go through legal procedures, which may include mediation and arbitration if you initialed those sections in the contract.  These procedures apply to Southern California and may vary by area.

Best,
Lori Frankfort