Many REO buyers hit financing snag
Can lenders dictate loan in bank-owned sale?
By Tom Kelly, Thursday, November 19, 2009.Remember when lenders were content to sell foreclosed homes to any qualified buyer? Their popular message was, "We're in the lending business, not in the real estate business."
With the large number of REOs (bank-owned properties) overwhelming most mortgage lenders and driving many others out of business, it's curious that some are making stringent demands on how foreclosed homes are financed.
A few lenders are even requiring that they supply the financing for any foreclosed property in their portfolio.
The policy took Tom Lasswell, a mortgage professional with Guild Mortgage, completely by surprise. Lasswell recently had a preapproved borrower who found a bank-owned property. While the buyers were highly qualified, the lender who owned the property let it be known that two other parties were interested in the parcel.
"Our clients' offer was accepted, but only if they got a loan from the lender who held the property," Lasswell said. "If they wanted the home -- which was perfect for them -- they had to get a loan with that lender and close with (the same lender). If our clients did not comply with those terms, the lender with the foreclosure would move on to the next person in line."
No specific loan terms were discussed or promised. The potential buyers simply had to accept that the financing would come from the lender holding the property.
"I've known some builders that require borrowers to be preapproved or prequalified through their affiliate companies or relationships, but the borrower has not been required to use those services as a part of the contract. They have always been able to choose."
Is it even legal for a bank to ever dictate where a borrower obtains financing?
According to Joseph M. Vincent, general counsel for the Washington State Department of Financial Institutions, a lender can require a borrower to secure financing when the lender is acting as the "seller" of the property. ...CONTINUED
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Submitted by Boyd Campbell on November 19, 2009 - 5:02am.
This is nothing new in our market. However, buyers always have choices. Plain and simple, refuse to buy that property and move to the next one. It appears we have somehow made Banks/Lenders Gods in this country. Excessive executive pay, bailouts, ridiculous fees, limited service, unreasonable demands on REO and Short sales and all while using our money. Stop the madness and just say NO!
Submitted by Kaye Thomas on November 19, 2009 - 8:08am.
Many lenders require that you use them to finance the property in an attempt to mitigate their losses on the property. On the other hand I've also worked with lenders who want nothing to do with the property and refuse to make a new loan to a buyer.
Submitted by Jillayne Schlicke on November 19, 2009 - 11:25am.
Hi Tom,
Thanks for this article. This activity may not be a violation of the mentioned federal law but what about RESPA?
Submitted by Jillayne Schlicke on November 19, 2009 - 2:01pm.
Hello? Anyone there? Buehler?
This is important.
If REO lenders are doing this, AND it's a RESPA violation, we need to expose it ASAP.
Inman editors, can we have a follow up story please?
Thank you so much!
Submitted by michael Espiritu on November 19, 2009 - 8:23pm.
This practice is certainly a RESPA violation and the lawyer referenced in this article should know that.
From CAR Legal:
"If the REO lender requires the buyer to use a particular lender for his or her loan, there may be a violation of RESPA if the required lender is an affiliate of the REO lender as defined in the federal regulations (See 24 C.F.R. Section 3500.15(b)(2)(a "required use" of an affiliate is a violation)and the definitions in 24 C.F.R. Section 3500.15(c)("affiliate relationship means the relationship among business entities where one entity has effective control over the other by virtue of a partnership or other agreement or in under common control with the other by a third entity or where an entity is a corporation as parent to subsidiary by an identity of stock ownership."
These violations of FEDERAL law must be reported and acted on if this is to stop. The Buyer's Choice Act" signed into law on October 12, 2009 in California prohibits sellers from dictating escrow and title services when a buyer is paying for those services. RESPA already covered settlement services including title, escrow and lending.
Our local association is letting listing agents know that they are violating not only MLS Rules and Regs, their local association rules but also FEDERAL law. There are huge fines associated with RESPA violations and it is time to get the unethical agents, lenders, etc out of the profession post haste!
I think it is very important to verify "facts" before we disemminate that them to the publio.
These illegal practices are becoming blatant and agents and brokers need to get involved to clean up the industry. If the agents had any ethics at all they would inform the banks that they are violating RESPA w/ language such as "Seller choice of services" or " escrow to be cancelled immediately if XYZ lender is not used".
The liability these agents and brokers are subjecting themselves to is unbelievable.
Michael Espiritu
Broker
Elite Realty Group
SoCal