Providing the Mortgage Commitment is Required for Good Faith

J Philip Faranda April 6, 2010

Certain details are simplified for expediency. 

Recently, we had a short sale fall apart because the buyer’s circumstances supposedly changed and they could no longer qualify. It stunk a little, and the attorney, who had done yeoman work to get the short sale approved, indicated she felt that the deposit should not be returned. We had been told that the buyers mortgage commitment had been issued a month prior; we were never furnished with a copy, and therefore we were never privy to the conditions. 

In the end, because we were left in the dark and the threat of a lawsuit and subsequent lis pendens would imperil the seller client to sell to another buyer, the deposit was released. 

Just yesterday, on another transaction we are working on (not a short sale), the buyer’s mortgage company informed the borrower that they would not close until certain repairs were made to the house. The buyer, concerned that the repairs would derail the transaction, threatened to walk. When they were told they risked their deposit if they broke the contract, they claimed that the conditions of their mortgage gave them an “out.” 

Guess what? We had not yet received her mortgage commitment, 3 weeks after being told it was issued. 

Why would the seller embark on repairs if there is no commitment in his hand? 

Worse, how could it be good faith to purposely withhold the commitment just in case you wanted to not complete the transaction? The answer, of course, is that it is NOT good faith to withhold the commitment if it has been issued. It isn’t a clever faith deposit, it is a good faith deposit. 

The conditions of a mortgage commitment, as well as its very existence, are the seller’s business if he is in contract with a buyer. The seller nullifies all other possibilities of selling, taking advantage of the tax credit, the Spring market, and other options when he goes into contract with a buyer. The seller depends on the buyer to be transparent and have integrity. It may be clever for the buyer’s attorney to “hold” the commitment to “protect” the client, but it is also bad faith. It is not advocacy to operate in bad faith. It is just bad faith. 

I should point out that on the latest example we received the commitment today. Work begins tomorrow. 

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