Mortgage Refinance Problems After Closing

by John in Michigan, USA

Ask Kate about mortgage refinance problems after closing because of a toilet and sink: We closed on our cash-out refinance last week. On Monday, the bank came back stating they refused to fund the home loan because they saw that the appraised value of the home was subject to the toilet and sink being replaced in the master bath.



John continues... The mortgage company representative has stated the bank could cancel the mortgage and we would have to start the process over, with the current rates available in the marketplace, which are much worse. Do we have any rights in enforcing the signed mortgage agreements? Thanks.

Kate Answers: Mortgage Refinance Problems After Closing

Ask Kate at Get-Your-Best-Mortgage-Rate.com
Dear John,

When an appraisal is completed by a real estate appraiser, subject-to's are not abnormal.

In your case, your home appraisal disclosed that the toilet and sink in the master bath needed work before the appraiser could place a final signature on the appraisal.

Now normally the bank would require a final appraisal inspection to verify the work was adequately completed before closing your home loan. However (and obviously) someone overlooked the condition and your loan closed anyway. Then a post-funding review uncovered the error.

But the question is, what happens next?

Can The Mortgage Company Do This

Can a bank call back their funds for a home mortgage loan that just closed? Yes! Does it often happen? Nope!

So here's the thing. It was the mortgage company's oversight. However I'm almost sure (is that an oxymoron?) if you read your final loan documents, you'll discover a clause giving the bank the right to call back their funds in instances like the one you are encountering.

In fact, you may have signed a specific document agreeing to supply any missing documentation after your loan closes.

Pick Your Battles And Save Your Interest Rate Lock

You have the right to hire an attorney and fight the mortgage company's decision. But my advice is to pick your battles. Replace the toilet and sink ASAP to get on with your life.

Especially to save your mortgage rate lock.

John, one more thing. I'd like to hear back from you. Let me know when you get this worked out with the bank.

Comment here on Mortgage Refinance Problems After Closing. Or Ask Kate another question here.

Best wishes,

Ask Kate


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Comments for Mortgage Refinance Problems After Closing.

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Additional flood insurance coverage required after closing
by: Shannon

Hi Kate, I was so happy when I closed my mortgage refinance because I thought the nightmare was over. It took a long time and it ended up costing me more than promised.

So the day comes when it's over. Then a few weeks later, the "post closing department" discovered that I need to buy double the flood insurance that I just bought before close. Frustrated, I contacted my insurance company and bought more.

Yesterday, I received another email stating that I need to cover my Home Equity Line of Credit as well and need to buy more flood insurance.

How long before I can move on with my life and not worry that my credit union will come at me for more? Thank you for your time.

Hi Shannon, Kate here...

So sorry to hear! You would not be the first homeowner to discover that the demand for increased flood insurance wiped out the benefit of refinancing.

But I am left wondering why the mortgage company did not alert you to this before closing your transaction.

It could be too late now, but after signing your mortgage loan documents, you could have exercised your 3 day right of rescission to cancel the refinance without incurring any cost.

Go to What Is the 3 Day Right of Rescission? to learn more.

To my knowledge, there's little you can do to limit the amount of flood insurance you are required to carry unless the house sits on a hill within your property that is marked in the flood zone. But this is on a case-by-case basis and generally requires an inspector's approval.

Best wishes, Kate

Something similar
by: Joseph

Kate, I had something similar to this happen to me. I went to the closing on my refinance, signed all the paperwork. Then 3 days later, the mortgage company called back saying that the loan could not be funded because of an item on my credit report that was 7 years old. They said that I could re-apply after the item was cleared up.

Hi Joseph, Kate here.

Yes, this can and does happen for different reasons.

1. Sloppy or incomplete review of initial credit report by the bank before closing.

2. Last minute credit report throws a wrench into the works because:

a. The credit bureaus have reported new, inaccurate, or duplicate information

or

b. The borrower thought it was safe to buy a car, furniture, or appliances after getting loan approval but before closing.

I'm so sorry this happened to you. It makes it even more painful that the information is 7 years old. Let me know the outcome.

Good luck, Kate

More Paperwork Wanted After Closing Before Funding
by: Wendy

Kate, After a tedious time to get to closing, 3 months of providing the underwriter with documentation, we close on a refinance and cash out. But four hours before funding the underwriter asked for another 12 month payment history.

Keep in mind, I gave permission for them to talk to the bank to verify all payment history. They did this right before closing.

Today is funding day and they want another 12 month payment history. Can they do this after closing? They won't wire my money after closing because of this? Thanks, Wendy

Hi Wendy, Kate here. Unfortunately they CAN do this. But should the mortgage company strong-arm you minutes before funding? Of course not!

This could be happening: The mortgage company funds each transaction with one of several investors. Although they didn't underwrite your loan to transfer to this source, at the last minute they discovered they could get better pricing with them today. So they are scrambling to provide specific documentation required by this investor.

It's bad business practice, even worse customer service. Count me in as disgusted. I'm so sorry to hear this is happening to you. Kate

Mortgage lender is requesting more refinance documentation
by: Anonymous

Kate, I'm so happy to have found your website! I'm in desperate need of help with my refinance. We already closed with a mortgage broker this month and April 25 was scheduled as the date of disbursement.

Well then on April 28 I receive an email from the broker's office requesting that we sign the original application once more and scan and email them back to them "so they can fund the loan" due to the fact that they were "unreadable".

So since I still had the original saved to my pc, I compared those docs with the new docs she sent me and other than minor changes which actually were now right this time - the one thing that disturbed me was that my employment information was deleted off the application.

In the beginning, they told us they would include my income, even though I'm a contractor. Then a month later they said sorry, they were wrong they could not.

I'm afraid that the reason they want the updated app is because then they can legally cancel the agreement and we lose our 4 percent rate, which rates are now much higher.

I don't think they can, and never did think they could fund the loan on my husband's income alone since our total debt to income ratio is showing as 64 percent (but the mortgage is under 30 percent).

I would appreciate your input on this.

Hi, this is Kate. I just got your comment and wanted to get right back to you.

Likely this is only a pre-funding audit and not of concern but I would ask questions to make sure. Here is what I'd want to know. And remember, it is important to get answers in writing...

1. I received your email and am happy to comply but I have questions. I compared my copy of the original app to the one you emailed me and noticed that you made some changes. (Itemize the changes.)

2. By complying with your request, am I in any way delaying the funding of our loan?

3. By complying with your request, is there any possibility that this could alter our interest rate, closing costs or terms?

Hope this helps and don't hesitate to write back. Your friend, Kate

Is it too late to save my mortgage rate lock
by: John

Rate Lock expired the day the bank communicated they would not fund the loan. Any other suggestions? Does the Loan Originator have any obligation at this point?

From Kate Hi John, I'm out of town so sorry for the delayed answer.

Well, of course you'd need to refer to your loan documents for any official recourse and this is why getting lock-in documents is crucial to obtain - verbal promises won't protect you.

In lieu of formal recourse, I recommend kicking and screaming. If that doesn't work, shout louder. Call one, two, three times. Then start up the chain.

Tip: Use the company website to find out who is in charge or you might end up speaking with someone posing as manager.

The loan officer may or may not be partially responsible for your lock having expired before your mortgage closed. But in the end, it is the bank who holds the purse strings.

The bank may act like there is nothing they can do, but don't give up easily. Go for it. It is YOUR mortgage and YOUR house. No one will care more about it than you.

Good luck, Kate

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