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Canceling A Loan Without Penalty

REM # LAW620

Ask the Real Estate Lawyer: Real Estate Law Q&A

By Ilyce R. Glink and Samuel J. Tamkin

Summary: A closing date is moved several times and the borrower wonders if they can cancel the loan. Sam explains that if you are refinancing a loan on your primary residence, you generally have a three day right of rescission. In other words, you can cancel the loan within three days of your closing without penalty.

Q: My closing was supposed to be done last Thursday, but the bank did not send the paper work to the closing company.

I called my mortgage broker and he insisted that I would have the loan by Friday of last week. But I could not close on Friday and he said he could close it on the following Monday. However the lender did not close my loan on that day.

I would like to know if I can cancel the loan with them and if I can get my escrow money back from the closing company?
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A: If you are refinancing a loan on your primary residence, you generally have a three day right of rescission. In other words, you can cancel the loan within three days of your closing without penalty.

You weren’t clear in your letter, but it seems that your loan closing is probably for a purchase. You deposited money with the closing company as earnest money for the purchase of your home. You can’t arbitrarily decide not to close and get your money back. Even if the lender is late, the seller may be willing to live with the delay and close on your deal.

Your purchase is governed by the terms of your purchase agreement. You must abide by the terms of that agreement or you risk being sued by the seller or losing your escrow deposit, or both.

If you are represented by an attorney, you should discuss your situation further with him or her. If you received a mortgage loan commitment letter, make sure that you have complied with all of the requirements of the letter. If the seller has done something to prevent the lender from closing the transaction, you may be able to terminate the transaction as a result of the seller’s actions.

It is not clear from your letter why the lender has failed to close on your loan and whether it was a temporary delay. If the lender can close the loan, you probably have to proceed with the closing.

If you are not represented by an attorney and have failed to close as required under the contract, you should seek help from one immediately. You will either need to reschedule the closing or determine what your options are based on the specific facts of your case.

Samuel J. Tamkin is a Chicago-based real estate attorney. Ilyce R. Glink’s latest book is The REAL U Guide to Bank Accounts and Credit Cards. If you have questions for them, write: Real Estate Matters Syndicate, PO Box 366, Glencoe, IL 60022 or contact them through Ilyce’s website
© 2004 by Ilyce R. Glink and Samuel J. Tamkin. Distributed by Tribune Media Services.





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