What is a "loan commitment"?

C

Cody Farkas

New Member
Jurisdiction
Ohio

Brief backstory


Entered into a contract to purchase a residential property. Seller is claiming that they are voiding the contract due to failure to meet the "financing contingency", which states:

Buyer agrees to make written application for the above mortgage loan and order the appraisal within ten (10) days after the date of acceptance; to cooperate fully with the lender's requests for information; to use good faith efforts to obtain the loan; and, shall obtain a commitment for that loan on or before 7/22/2019.

If, despite Buyer's good faith efforts, that commitment has not been obtained, then this Agreement shall be null and void and Buyer and Seller shall sign a mutual release authorizing the return of earnest money to Buyer without any further liability of either party to the other Brokerage(s) or Agent(s), except that Seller may grant an extension in writing.
Click to expand...

We provided an approval letter to the seller's agent on 07/16/2019. This was not pre-approval; it was an approval letter contingent only on appraisal, which states:

July 15, 2019

Re: Application Number XXXX:

Dear XXXXX & XXXXX,

Congratulations! We are pleased to let you know that you have been approved for a $XXX,XXX.XX mortgage loan for the following property: XXXX Madeup Street, Sometown, OH, XXXXX-XXXX.

We have based your approval on the information you provided, the terms and conditions you specified for your loan, and a full review of your credit.

The following terms apply:
Interest Rate: X.XXX% Term: 360 Months Loan Type: Fixed
Commitment Expiration: 09/13/2019

In addition, your loan is contingent on the following:

* Satisfactory appraisal completed by Madeup Lender on an acceptable property.
Click to expand...

We believe that the approval letter sent to the seller's agent on 07/16/2019 satisfies the financing contingency and that the seller has no cause to void the contract. Ohio Revised Code 1322.01-U defines the term "loan commitment":

"Loan commitment" means a statement transmitted in writing or electronically by a mortgage lender setting forth the terms and conditions upon which the mortgage lender is willing to make a particular residential mortgage loan to a particular borrower.
Click to expand...

So, is the approval letter a "loan commitment"? Does the seller have cause to void the contract? We're very confused. We have already consulted with an attorney and will be reviewing the contract and timelines in detail on Monday but I would like to be as prepared as possible with any other information I can find before then.
 
Sorry, but an approval with a contingency is not a commitment.

The lender can decline the loan based on the results of the appraisal.

You should have gotten the appraisal and final approval by the lender by 7/22.

What's the status of the appraisal at this point?

And what does

Cody Farkas said:
Seller is claiming
Click to expand...

mean?

Has he written a letter cancelling the sale? Is he just talking? Something else? Claiming is a far cry from doing.
 
adjusterjack said:
Sorry, but an approval with a contingency is not a commitment.

The lender can decline the loan based on the results of the appraisal.

You should have gotten the appraisal and final approval by the lender by 7/22.

What's the status of the appraisal at this point?

And what does



mean?

Has he written a letter cancelling the sale? Is he just talking? Something else? Claiming is a far cry from doing.
Click to expand...

If an approval with a contingency is not a commitment, why does the approval letter state a "commitment expiration" date?

The seller's agent sent us a mutual release with an addendum. They are attempting to cancel the sale.

Can't the lender decline the loan at any time before the funds are actually dispersed for a variety of reasons?

The appraisal was completed and we received a third approval letter on 7/23/2019. Everything was done as promptly as possible; the contract was signed on 7/13 and we completed our mortgage application and the lender ordered the appraisal on the same day.

A few notes:
1. The date in the contract, 7/22/2019, appears to be an error. The contract was amended after negotiation, it was supposed to be 10 days following the day the contract was signed, but the amended contract was not actually signed until 7/13. Note that the first part of the financing contingency states "within ten (10) days".
2. In Watson v. Gerace, 05-1296 (3rd Cir. 2006), it was found that a mortgage approval document with contingencies (in this case it was really a pre-approval, as it was contingent upon both credit review and appraisal) satisfied the financing contingency clause.

I am also not sure how an approval with a contingency on appraisal is not a "loan commitment" when the Ohio Revised Code specifically states that a "loan commitment" may have conditions?
 
PayrollHRGuy said:
What was the date of the purchase contract and did your "order the appraisal" within 10 days of that date?
Click to expand...

The original date of the purchase agreement was 7/11/2019. It was amended after negotiation and signed again on 7/13/2019.

The appraisal document we have in our possession has the "date of inspection and effective date" listed as 7/16/2019 and the document was delivered to us by the lender on 7/23/2019.
 
Cody Farkas said:
If an approval with a contingency is not a commitment, why does the approval letter state a "commitment expiration" date?
Click to expand...

You're splitting hairs. It's just as much a commitment as your contract to purchase the house contingent on getting the loan and a few other things. Your lender has a way out, you have a way out. Same thing.

Cody Farkas said:
2. In Watson v. Gerace, 05-1296 (3rd Cir. 2006), it was found that a mortgage approval document with contingencies (in this case it was really a pre-approval, as it was contingent upon both credit review and appraisal) satisfied the financing contingency clause.
Click to expand...

Then you already have your answer, what do you want from us?

Cody Farkas said:
The seller's agent sent us a mutual release with an addendum. They are attempting to cancel the sale.
Click to expand...

So, don't sign it. Write back that the due date for the approval was the 23d and you are ready to go through with the purchase.
 
adjusterjack said:
You're splitting hairs. It's just as much a commitment as your contract to purchase the house contingent on getting the loan and a few other things. Your lender has a way out, you have a way out. Same thing.



Then you already have your answer, what do you want from us?



So, don't sign it. Write back that the due date for the approval was the 23d and you are ready to go through with the purchase.
Click to expand...

I'm not splitting hairs. Your second sentence there is precisely my point: a loan commitment with conditions is still a loan commitment.

As for what I "want from you", I'm not sure what you mean. The cited decision was not in Ohio. I am looking for someone familiar specifically with real estate and/or contract law in Ohio who can provide an informed opinion as to whether the approval letter is in fact a commitment, or whether the appraisal being completed on 7/16 effectively satisfied the financing contingency, or perhaps something I'm not thinking of.

We have not signed anything. We are proceeding with our lender as though the contract is still binding, per our realtor and his broker. We are meeting with an attorney tomorrow to review. Until then, I'm just gathering information and looking for advice and opinions.
 

Share this page

Get a free case review from a lawyer
Back
Top