If a buyer was to take out equity loan for down payment..?

Update:

 but failed to do so, and can't bring enough cash to close, does he get his earnest money back? Can he be forced to do it and not back out of the purchase of the home? 

Update 2:

Or can he be forced to rerun his application for loan with a lesser down payment?  We think buyer purposefully didn't take the equity loan to avoid going through with the sale. He told us that's where down payment was coming from, but I'm sure that's hearsay and he'll deny that. 

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  • 4 weeks ago
    Best Answer

    If a buyer doesn't get financing, and the purchase is subject to financing, then he gets his deposit back if the loan is denied.  That said, as the seller, you are entitled to see the denial letter.  If he can't provide it then you may be entitled to the deposit.

  • 4 weeks ago

    If they want out, they get out and pay the penalties.

    They could decide to walk away from the closing at the table, right when ready to sign...that action has repercussions...but you cannot force a sale.

  • 4 weeks ago

    Mark C. I am a mortgage loan officer and operations manager at a mortgage company. Most contracts state that if the buyer is denied financing they get their earnest money back. He would have been denied due to insufficient cash to close. You can borrow money for a down payment (I noticed some comments say you can't).. but the lender then has to get the loan docs & add it to the buyers debt to income & they have to qualify with the new payment added. (Used to be you couldn't borrow down payment). You can never "force" someone to buy your house. You can sue them if they break the terms. However, I doubt the contract stated they were going to borrow the money for the down payment so buyer will just get a denial letter & probably your contract stated they get their earnest money back if financing is denied. I would suggest asking for a copy of the denial letter though..

    Source(s): Mortgage lender 33 years.
    • mark c4 weeks agoReport

      Awesome. Thank you. And no. Nothing in writing about down payment but denial letter was given.

  • 4 weeks ago

    Honestly this could go either way.

    Did their pre-approval letter or contract specifically say they intended to take a home equity loan on their current property? If they were denied the loan then they can probably claim their earnest money back under the finance clause. If they never even applied for the loan you could argue they did not make a good faith effort to fulfill the contract.

    As others mentioned, you generally cannot FORCE them to do something, but you can seek to keep the earnest money and potentially consider a lawsuit to recuperate actual costs/losses if they willfully violated their contract.

    Again, it could go either way based on the details. You should work closely with your agent and consider getting an attorney if you think its going to turn into a fight.

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  • Anonymous
    4 weeks ago

    If the buyer failed to do what he said he would, he would lose the earnest money.

  • Anonymous
    4 weeks ago

    Was there a financing contingency in the contract? If yes, he gets his earnest money back if he can't get financed.

    Down payments generally can't be borrowed in the USA. Most likely he didn't follow through with the equity loan because the lender for the second purchase informed him that he would not be approved if he borrowed the down payment.

    ETA: You cannot "force" him to do anything. But you can sue him (or seek arbitration) if he breaches the contract. We don't know if he has breached the contract because you didn't tell us what the contract actually says and if he has actually been denied financing.

    Where is your agent or attorney? This is what they are paid for.

    • Coffee Drinker
      Lv 7
      4 weeks agoReport

      Mark, a home equity loan can take 30-60 days.

      SOME banks in SOME situations may issue a check in a week, in situations such as a completely paid for home or one where the seller clearly has $100k+ equity. But you cannot assume he could just call the bank and get a check next week.

  • 4 weeks ago

    What does the contract say?

    • mark c4 weeks agoReport

      If financing fall
      s through, its the normal contingency that they get deposit back..

  • 4 weeks ago

    If the agreement has gone unconditional (time-wise) then he would lose the deposit (the earnest money).

    • mark c4 weeks agoReport

      If financing fall
      s through, its the normal contingency that they get deposit back..  Technically it will fall through but can sellers force him to try other loan options or come up with the cash?

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