My buyer won’t get credit approval in time. What should she do?

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08/04/2015 | Author: Editorial Staff

What can a buyer do if she is unable to obtain credit approval in the time provided in the Third Party Financing Addendum for Credit Approval?

If the buyer cannot obtain credit approval and she wants to exercise her right to terminate the contract, she must give written notice to the seller within the time period provided in the addendum. She can use the Notice of Buyer’s Termination of Contract (TAR 1902, TREC 38-4) for this purpose. If the buyer gives timely notice, the contract terminates, and the earnest money is refunded to the buyer. If the buyer doesn’t provide the notice within the time required, the contract will no longer be subject to the addendum and the buyer could end up in breach of the contract if he is unable to obtain credit approval.

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Categories: Legal
Tags: legal faq, legal, buyers, forms, third party financing addendum


Kim Kindig on 03/23/2017

I have a contract where the buyer has a foreclosure not disclosed on their application. They can get approved but no fha case number can be given until like the maturity date of the foreclosure which means we would have to amend our contract to months to get appraisal and close. Seller does not want to amend and buyer can’t get approval with the 21 days of the financing addendum but they are refusing to terminate the contract. So my seller is being held hostage. If buyer won’t terminate and doesn’t notify us that they aren’t approved they move forward as though they are since it means the contract is no longer contingent on financing but they could drag it out a month and not close and tie up,the property and the seller has no recourse. Then the buyer has to sign to release earnest money to the seller but if they won’t then what? We have lost a month and can’t do anything. Can’t the seller then sue for specific performance if buyer can’t close by contract date ?

David Davis on 02/07/2017

Yvonne Russell,
Simply put, NO.  The Golden rule.  The modern version that applies in mortgage lending anyway, 

“The one with the GOLD gets to make the RULES.”

I know that’s not what you wanted to hear, but every lender is going to make or set their own rules and or standards for what approved means.

Yvonne Russell on 02/07/2017

Can someone define “buyer approval” for a lender that insist it means MI and final approval?  I am about to lose a transaction where the lender won’t commit to 45 days for buyer approval because she wants 2 complete bank statements to verify income, ie.  bank statement for 2/15-4/15. THAT’S 60 days for crying out load.  Is there a post here that i can direct the lender to which explains what buyer approval is.

Stephanie Zieman on 08/05/2015

Well thank you for pointing out while typing on my phone I hit the O instead of the P.  I’m sure that really took away from the topic being discussed.

Theresa Akin on 08/05/2015

@ Lisa Ackerson; I almost typed your name. Yep that’s was an out and out lie. Nothing you could help. May have been a situation to contact an attorney. But lot’s of changes since then even.  One thing about typos though they can delay a contract or terminate it.  if we don’t question each other on these forums, we most certainly won’t learn.  As you can see in my last comment at David Davis. I kept mentioning changes in Special Provisions but meant the Amendment.  I believe we can at least all agree these forums make us think or rethink our remarks.  I may say one thing but as long as we use the right forms and can correct ourselves it’s a plus.

Theresa Akin on 08/05/2015

@ David Davis; Did you do that on purpose? Shame on you! Were talking serious stuff here! I woke up in the middle of the night couple weeks ago realizing I kept stating about “Special Provisions” and realized I myself meant to address a situation, I believe it was about repairs. Should’ve stated entering the change in an “Amendment”.  Thanks for keeping me on my toes. They’re getting old!

Lisa Ackerson on 08/05/2015

I was the listing agent in my case - what actually ended up happening was the Buyer put down a salary that was higher than he was making basing on a statement that he was about to receive a promotion.  The Lender apparently checked with his supervisor and was told that this was true.  The Lender could not approve the loan until the promotion went through - hence the two week extension.  At the end of the two week extension, it turned out that there was no promotion in sight and that the person the Lender had spoken to when checking his facts was in fact not the Buyer’s supervisor but someone the Buyer had put up to talk to the Lender.  So, basically, the Lender did his job but was duped and the Buyer lied.  This was pre-2008 so things were not quite as tight back then. 

I figured that Stephanie was not being acknowledged because of a typo but I really didn’t want to believe someone would really do that ESPECIALLY when they did it as well.  Hopefully, I haven’t made any typos!

Theresa Akin on 08/05/2015

When a pre-approval letter is issued to a buyer and given to the buyer’s agent, that buyer’s agent has no idea if the buyer has lied on “the application”.  The pre-approval is no better than a prequalification in my experience communicating with the lender. In the beginning they check to see how much buyer has in funds, if buyer is still employed and what he has going out vs. coming in. The buyer’s agent does not get to see the application so the agent has no idea if the buyer lied.  It’s not the agent’s fault.  I give a buyer a list of dos and don’ts and tell them to tell the lender everything they have to pay out. The lender’s want to know. If they only pay less than $100.00 a year for HOA, they need to let the lender know this.  Sometimes a transposition of numbers can be considered a lie. If a buyer owes child support that will stop a loan app in it’s tracks so fast.  The buyer’s agent cannot and should not be held responsible.

David Davis on 08/05/2015

At least/last someone finally noticed!

Theresa Akin on 08/05/2015

@ Lisa Ackerson,  David Davis does not want to recognize that Stephanie Ziemann made a typo when entering her name. Yet he does the same in the comment following. He makes a typo in his own name by spelling it Dvis.  Quick to point out another’s mistakes but not recognize their own.

David Davis on 08/05/2015

@ Brandon Werst.  While I realize that is what the contract states, there is some evidence that is “bad law”.  In a recent meeting of the Broker Lawyer Committee that serves TREC it was brought up by Chuck Jacobus, Chair of that committee, that the language you refer to is in fact contrary to the law.  Expect to see this language go away in upcoming revisions to contract forms.

Brandon Werst on 08/05/2015

For those concerned about the Release of Earnest Money…you should read Para. 18C and 18D.

Specifically D -
DAMAGES:  Any party who wrongfully fails or refuses to sign a release acceptable to the escrow agent within 7 days of receipt of the request will be liable to the other party for liquidated damages in an amount equal to the sum of: (i) three times the amount of the earnest money; (ii) the earnest money; (iii) reasonable attorney’s fees; and (iv) all costs of suit.

So, if a party feels they are right…there is much more on the table than just the Earnest Money.

David Davis on 08/05/2015

I’m sorry but I do not see any Stephanie Ziemann in the comments listed.

Lisa Ackerson on 08/05/2015

@DavidDavis - Stephanie made an earlier comment that I was referring to in my response.  Hard to blame the listing agent when the Lender not only wrote the pre-approval but also assured me all along the way that the Buyer was good, even as the Seller extended the closing date by two weeks, the Lender said the Buyer was good.  It wasn’t until two weeks after the closing date - the extended closing date - that the Lender told me that the Buyer lied on the original application.  Exactly how was that something I should have known.  Not sure I understand how much more I could do other than trust the person who is in charge of the loan. 

Additionally, yes, it could have all gone to litigation - of course, but why would a Seller want to do that?  The Seller wanted to sell his house and move on. 

I was just disagreeing with the fact that saying earnest money will be refunded under certain conditions of the contract is not as easy as it sounds considering the fact that both have to sign the Release of Earnest Money for that to happen or a judge will have to order it.  I think Buyers and Sellers need to understand that enforcing the contract could result in litigation - it’s not just a cut and dried situation.

Judy Kay on 08/05/2015

Years ago I realized that that the Rekease of Earnest Money contract really means nothing. 
A seller listed vacant land which my buyer put an offer on. Two weeks into the process, the title company found out that the seller had bought the land at auction and legally could not sell the land for 6 months.  My buyer submitted the Termination and Release docs which the seller refused to sign.  Seller even had an attorney hound the buyer and me because he was willing to split the earnest money! 
Going to court is usually not an option as attorney fees and time will usually negate the settlement. There has to be a change in the system.  If the title company states that the sale cannot continue for whatever reason, they should be allowed to refund the earnest money. My buyer’s earnest money is still in contention after about 7 years.  I’m sure the state is taking care of hundreds of thousands of dollars like this.

AIDA NAZZAL on 08/05/2015

I agree with Stephanie Ziemann the third party is not protecting the seller, it did happen with me few times either buyer refuse to sign the release or buyer agent
will explain the third party according to her buyer benefit, it should include
all kind of buyer approval not to eliminate loan approval , as we are protecting the buyer we need also to protect the seller.

David Davis on 08/05/2015

@ Lisa Ackerson, Who is Stephanie Ziemann?  The seller does not have to sign the release of earnest money.  The fact is the seller can refuse to sign the release if the seller has justifiable cause such as the buyer’s lack of specific performance.  It is going to very likely result in litigation, but that is the chance the seller & buyer takes.  If a buyer “lied” on their application, why was this not discovered by the listing agent when the offer came in?  Did it surface after the offer?  When did the listing agent become aware of the so called lie?  In theory, if the buyer lied on his application (application insinuates the beginning), why was there even an approval letter issued?  Far too many wholes in that story to try to figure out what happened or why.  Back to the subject of the original post….  If the buyer cannot qualify for the loan, they can terminate the contract either under the option period allowed in the termination option portion of the contract, or under the third party financing addendum.  Once both options have expired, the buyer is subject to specific performance and the earnest money is likely to be awarded to the seller barring any kind of agreement of the parties otherwise.

Lisa Ackerson on 08/05/2015

I completely agree with Stephanie Ziemann - terminating where option money is to be returned to Buyer or kept by Seller is really handled poorly.  I had a listing a few years ago where the Buyer held us over two week after the closing date trying to get his financing worked out.  Because my Seller didn’t want to have to start over, we gave him the extension of time to allow him to get approved.  Two weeks later, the Lender said he had lied on his application and was never going to get approved.  But the Buyer refused to sign over the earnest money to the Seller.  In order to move on, the Seller agreed to split it with him and the Buyer agreed.  Now here’s a Buyer who flat out lied, a Lender who did not do his job making sure that the Buyer was not lying, and my Seller who lost out in the long run.  Having to have both the Buyer and Seller sign off on the earnest money is so ineffective!

Dena Smith on 08/04/2015

I’ve always felt that if a buyer needs to exit a contract via the TPF addendum that they need to provide some kind of written proof that they can not obtain financing. Never had a transaction where this came into play.

Keep in mind that the TPF addendum deals with the buyer’s credit and assets. This is NOT for loan approval. Most buyer’s lenders have already checked the buyer’s credit & assets prior to the offer.

In the next few weeks we will see contract changes and the rumor is that the TPF addendum is one of the big changes that will be mandatory after 9/1/15.

Heads up folks - things are changing again.

David Dvis on 08/04/2015

@ Steohanie Ziemann, Your comment does not make sense.  Tarit, Yes Buyer can ask for an extension using an Amendment.  Seller is not required to give it, but Buyer can ask.  Keep in mid that the Buyer needs to ask before other options have expired, otherwise the Buyer would be in default and subject to those remedies.

Steohanie Ziemann on 08/04/2015

My issue with the third party doesn’t reay protect the seller. Even if it expires and the buyer cancels, they can refuse to sign the release of earnest money keeping the house in limbo and the seller still loses.

There needs to be a clause added that the buyer can’t refuse to sign the release once that expires.  Otherwise that whole document is a feel good that doesn’t mean anything.

Tarit Chaudhuri, CCIM, AIA on 08/04/2015

Most probably termination is not a desired option for Buyer. Can Buyer ask for an extension of the date with an Amendment, within the specified time and mention if the request is not accepted by .............. (date)  consider the contract is terminated. Formal document will follow.

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