What happens when your lender doesn't deliver?

When shopping around for a lender, it is easy to focus on the interest rate alone. However, don't overlook lender fees and the reputation of the lender.

A client of mine recently put a contract on a condo and found a great rate from a local lender (Mike Lange of Countryside Mortgage Services). Although the lender fees were a little high, offsetting somewhat the great rate that was quoted, my client met with the lender and thought he was legit. However, the day before settlement the lender could not be reached and the day of settlement the money was not delivered.

Legally, at this point, the seller could have claimed the buyer was in default of the contract, kept the earnest money deposit and sold the condo to another party. Fortunately, I had kept the listing agent well informed of the situation and stressed the committment of my client to complete the transaction. The seller was also very understanding and was willing to delay settlement until the following week.

My client found a new lender, highly recommended by a friend, who was able to do a rush process (not without extra costs to my clients!) in less than a week. My client was able to successfully close on the deal only several days after the original settlement date.

What recourse does someone have against a no-show lender? Not much. The lender in this case was also a mortgage broker and is licensed by the state. My client followed the procedures and filed a complaint. If he was just a lender, there is no licensing requirement by the state. My client is also planning on filing a suit in small claims court, which has a cap on damages that can be claimed. Even if he wins the case, collecting the money can be another matter.

When selecting a lender, look at the quoted interest rates and fees, but also pay attention to the lender reputation. Also, be wary of any out of state lenders that don't come recommended. Ask friends or co-workers to recommend a lender that they have used. Also, most real estate agents have established relationships with several preferrred lenders that have a strong incentive to deliver or risk losing any future referrals.