4E // Real Estate & Home Builders Guide // May 2017
The ups and downs of working with
a developer-recommended lender
By Ilyce Glink and Samuel J. Tamkin
Tribune Content Agency
Q
: Should I pursue a lawsuit against
the builder because the companies
recommend a lender and the lender backed
out three days prior to closing? The builder
decided to keep my earnest deposit even
though I wanted to close. I didn’t default in
any way.
: Our first question to you would be
to figure out why the lender backed
out of giving you a loan. It’s not unusual
for developers and builders to work with
particular lenders on their projects. These
lenders generally will know the ins and outs
of the development and have a better handle
on the underwriting issues involved with
new construction developments.
There are always pluses and minuses to
using a lender recommended by your devel-
oper, builder or seller. One disadvantage in
using a seller-recommended lender is that the
lender may give you an above-market deal
for your loan. The lender may not have your
best interests at heart and may not be the best
lender out there for the loan.
A
The advantage of using the recommended
lender may be that the lender may have incen-
tives to pass along to you that other lenders
may not have. The lender should have all the
information it needs about the developer and
the development to give you the loan, which
should save you time. They may have given
the developer the construction loan financing
and have an incentive to make sure that the
development is successful by vetting prospec-
tive buyers and giving those buyers loans to
purchase homes in the seller’s development.
You may also be able to lock in your loan for
a longer while the property is being built.
There are so many factors that a buyer
should consider in deciding whether to use
the “preferred” lender in a development.
From our perspective, the important thing is
to make sure you are working with a well-
known, reputable lender.
We have seen lenders deny loans to buyers
in your situation. When that has happened,
it has generally been a credit issue. Now, if
the lender could not give you the loan due to
an issue caused by the lender, you’ll have to
look at your contract to determine what your
remedies might be.
You’ve told us that the lender backed out,
and we wonder if the lender backed out of
your loan or doing any loans for this devel-
oper. If the lender backed out of handling
loans with this developer due to something
the lender found out about the developer or
his business interests, you’ll need to find out
what those issues are and then decide how to
proceed. If the lender backed out because you
bought a car a week before closing and threw
your debt-to-income ratios out of whack,
well, that might be on you.
Do you know if your contract had a
provision that allowed you to terminate
the contract in case you were unable to get
financing for the purchase of your home? If
so, did you notify the seller of your inability
to get financing during the time limits set
in the contract? By following the terms of
your contract, you could protect yourself and
assure the return of your earnest money in
case your lender failed to give you financing.
Your best move now is to talk to a good
real estate attorney in your area to decide
how to go forward.
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