Mortgage Lender Cancels Refinance at Closing Due to Technical Error

by Steven from Sacramento, CA

Ask Kate when a mortgage lender cancels your refinance during closing: Ten days after signing final loan documents, Steven discovered his refinance had been cancelled due to a technical error on the bank's side. Steven's repeated attempts to contact the lender were met by silence. Is the bank still legally obligated to fund his refinance?


Ask Kate: Can a Mortgage Lender Cancel My Refinance After I Signed Loan Documents

By Steven from Sacramento, CA

Can a Mortgage Lender Cancels My Refinance After I Signed Loan Documents
Hi Kate,

I've been working on a refinance with a lender from October 2015 to February 2016.

I've provided all documents they requested within hours and never missed or delayed any of their requests.

I finally get to sign the closing documents in early February. It has been over 10 business days and the lender has not funded the account.

It took several days of leaving numerous messages to all the contacts I have with the lender. I've also keep a close contact with the closing agent and found out through him that the lender has withdrawn my file.

On that same day I receive a call from the funding department telling me they made a technical error on their end. The first payment date should have been in April instead of March.

My current mortgage payment is due and I plan to continue paying that to avoid penalties. Can the lender completely reject the loan for this reason?
What actions can I take if they do deny the loan?

Are they legally obligated to fulfill what's in the contract since I've signed the closing documents?

Thanks in advance for your response.


***zz-portrait-left.shtml*** Kate's Answer: Can a Mortgage Lender Cancel My Refinance After I Signed Loan Documents

Hi Steven,

You know, there are times when mortgage borrowers shop for a competent lender, request and read the written disclosures, supply all of the needed paperwork, and yet still encounter a fire drill at closing.

Hold a Lender Accountable for Your Refinance

In some ways you are lucky. At least the funding department admitted their error. Even so, prepare yourself. They may still try to place the blame on you. So create a timeline of the loan process, including the dates your paperwork was requested and when you complied, when you locked the interest rate, and when you signed final loan documents. Add the number of times you called about the closing and got no answers.

If they claim it's too late to fund your mortgage because the locked-in rate has expired, insist they pay for an extension or at the very least, refund your upfront lock deposit.

Disreputable lenders have tried in the past to wiggle out of closing mortgage transactions after financial markets took a dive and rates went up. See more at How to Protect Your Locked Mortgage Rate.

If they claim the loan cannot be closed because the delay has increased your closing costs, insist they pay the extra fees.

By the way, you are smart to go ahead and make your house payment that is due. Otherwise you would lose the solid ground that you now stand on.

Mortgage Denials Must Be in Writing

By law, lenders are required to put a denial in writing and itemize all reasons you were turned down for the mortgage. So if they threaten a denial, demand it in writing immediately. Then let them know you are taking the written document directly to the Consumer Financial Protection Bureau and reporting in detail what has happened.

It's Not Over Even When You-Know-Who Sings

Generally speaking, lenders are not obligated to close a mortgage transaction even though a borrower has signed the final paperwork if it's discovered that a condition of the mortgage approval was overlooked. Technically, mortgages can even be re-called after closing in extreme cases (although I never saw it happen).

But in your case, it appears the delay in closing is the fault of the lender's funding department. So stand your ground. Don't let them push you around.

Best wishes,


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