Legal Question in Real Estate Law in California

Re: Lender/Escrow Issue

Most lenders are pretty careful with making commitments that are enforceable; there is almost always some weasel-wording that allows them to pull the plug on your deal at the last minute if they get cold feet for whatever reason.

This doesn't mean it's impossible that you have a valid cause of action, it only means without looking at the loan agreement I'd have to say the odds are against you.

It's also worth pointing out that the loan agreement is between the lender and the buyer, not you; you would perhaps have standing to sue as an intended third-party beneficiary, but this is just one more legal hurdle.

You didn't mention the possibility that what's occured is a default by the purchaser. Was there a financing contingency, and if so, had it been removed? Did the buyers put up a deposit? Was it forfeited? You may have a better claim against the buyers than against their lender. The starting point in figuring out whether there has been a breach of either contract is to read the contract itself, looking for contingencies, commitments, words stating what constitutes a breach, and remedies such as mediation and arbitration, as well as an attorney fee provision.

Re: Lender/Escrow Issue

Mr. Whipple gives you a very thorough and good analysis of your situation. For all the reasons he states, especially that the contract was not made for your direct benefit, you have a weak case against the lender. What if the same situation had occurred but the reason the lender backed out was at the last minute it found out some very negative information about the borrower that effected the likelihood of his paying back the loan, but it easily could have found out that information before escrow closed. Would you expect them to be liable to the home seller? If you wee able to successfully sue, then individuals not parties to the contract would be suing a lot and everyone would be afraid to make contracts or charge more for the services required by the contract. Sorry.

Re: Lender/Escrow Issue

The lender's contractual obligations, if any, are not owed to the seller, your wife, but would be owed to the borrower, who is the buyer. Secondly,it is nothing short of foolhardy to move out before escrow closure, and if you have an agent and they did not build in a clause which provided that possession would be relinquished sometime after escrow closes, they erred. What is occurring in the loan market now is that lenders are FINALLY doing their due diligence and looking at the loan and escrow documents and not assuming they are truthful, based upon a loan broker or escrow agent's representation. As a result, most sales involving "80/20" loans will be consummated because they have a high fraud and/or risk probability. An 80/20 loan means the buyer is putting ZERO down--why? Because they have no money. As a lender, do you want to loan to a buyer who is unable to come up with anything as a down payment? What happened in the last few years is that the borrower would apply for a first loan of 80% and the loan broker/escrow officer would lead that lender to believe that the buyer was coming up with the other 20%, but when, in actuality, the other 20% was coming from a loan to be secured by a second deed of trust. It may be that the lender in this case found out about the source of the 20% and backed out, as most of them do not intend to loan in such situations--if they do, they want much higher interest rates because there are much greater risks. If your wife's contract with the buyer provided that the sale was contingent upon getting those loans, then your wife cannot sue the defaulting buyer; if it did not make it contingent on the loans funding, then your wife could sue for damages, but remember, this is a person with ZERO money. Lastly, if there was a liquidated damages clause in the contract,your wife may be able to claim those monies.