Mortgage Broker Threatens Home Buyer with Massive Fee
by Sean from Denver, Colorado
Ask Kate about mortgage broker who threatens home buyer with massive cancellation fee: Sean's loan originator ignored 7 requests to lock in his interest rate. Then after locking at a higher rate, the broker proceeded to charge Sean a $15,000 cancellation fee based on fine print in the loan documents. Sean is at his wits' end and asks for his recourse.
Ask Kate: $15,000 Loan Cancellation Fee Charged By Sean from Denver, Colorado
My lender is a professional contact whom I have referred many clients to. Since I always received good feedback, I decided to use him for a Jumbo size mortgage program.
After completing the application, we quickly went under contract. He had us sign some disclosure documents and sent us the usual verification. He promised to watch rates and constantly dissuaded us from locking. I asked him on 7 different occasions to lock and was told numerous times that we would be crazy to lock with rates falling.
Here is where it gets really bad. On two occasions, the lender asked us to sign a disclosure with an estimated rate. Unfortunately we signed after the broker told us it was necessary to continue underwriting and that the rate was just a place holder. Don't pay any attention to those numbers
, he told us.
Finally after multiple missed objection deadlines, he produced an authentic lock, albeit with a discount point and his fees of course. The loan is for 600k and our closing costs are over 30k! I immediately instructed him to terminate. Now he is threatening to sue us for his fees, 15k, since we agreed to some language in the terms of the contract stating that if he is able to obtain loan approval, we are liable for his fee. Is this legal? I just want out and am at my wits end.
My Realtor suggested another lender which we started underwriting with. When our current lender got wind of this, he threatened to sue the new lender for theft of work product. We are now essentially unable to be underwritten and at the whims of this crook. What do you suggest?
***zz-portrait-left.shtml*** Kate's Answer: $15,000 Loan Cancellation Fee Charged
Even if I didn't follow the financial markets, I'd know when mortgage interest rates went up because borrowers start writing me with stories similar to yours. Bottom line, your broker's behavior is unprofessional, probably stemming from greed and lack of training. What a shame.
Mortgage Cancellation Fees
When I transitioned from working for banks and mortgage institutions to becoming a broker, one of the first rules of conduct was to forgo charging cancellation fees. This meant working for free if a real estate or refinance transaction did not close. Of course, no one is thrilled to go without compensation. But then again, this is part of the job.
Recourse for Mortgage Borrowers
Unfortunately though, your mortgage broker did not get a similar memo. (Or he chose to ignore it.) In response to your question, here are a few considerations to get you off this bumpy road and back on the path to financing the home you are trying to buy.
- You could choose to proceed with the new mortgage broker and hope the threat subsides and eventually disappears. How to Compare Mortgage Lenders to Avoid Borrower Remorse by Kari in Portland, OR.
- Or you could take the bull by the horns and call an attorney. I can't speak to your state's specific legalities of charging $15,000 in cancellation fees but common sense would say that's exorbitant and unethical. However, an attorney could review the loan disclosures and give you a full rundown on the actual legalities. At the same time, you could ask the attorney to address the fact that your broker failed to lock in your mortgage rate, as instructed 7 times. See a related Ask Kate question at Mortgage Rate Lock Stall Tactics by Michelle from Wake Forest, NC.
- A third choice is to call the actual lender, the company the broker is using to fund your mortgage. Even if the broker failed to disclose this information to you, the actual lender (the company with the money) should have sent you duplicate loan disclosures and rate lock-in verifications by now. I have a hunch that they would not be pleased to hear about a $15,000 loan cancellation fee. (Remember, mortgage brokers must be approved and continue to toe the line to maintain their lender/broker agreements.) See more at Verbal Mortgage Rate Lock Agreements Are Worthless by Dom from Kendall, FL and followed by Lee's comments.
- A more long term choice is to file an online complaint with the Consumer Financial Protection Bureau. You'll find how to do this at How to Contact Washington D.C., Write Your Government Agencies, and File a Mortgage Complaint. (Look for the blue box.)
Read Loan Disclosure Fine Print BEFORE Signing
Although more for the benefit of other borrowers getting started in the mortgage process, allow me to stress this again. Always read the fine print. Do not disregard fine print. Make sure to understand the fine print BEFORE signing loan disclosures.
Returning to your situation, go to
for more Ask Kate help.
Best wishes for a speedy resolution,
The reason I say the broker locked you at a higher mortgage rate is because your loan fees were higher than expected. See Stay on Top of Market Trends to Easily Compare Fixed Mortgage Rates
for more explanation.
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