There is a requirement in the Conventional, FHA and VA Loan Contingencies that a buyer is
required to promptly notify the seller of any mortgage lender to whom Buyer has sent a notice
of intent to proceed with loan application, along with the name and contact information for the loan originator.
Further, in another section of all 3 loan contingencies, there is a qualification that in order for a buyer to terminate without penalty (get their earnest money back) based on a loan denial, the buyer must have fulfilled all of the applicable requirements in the exhibit. That includes having promptly sent the notice of intent to proceed with loan application. Put another way, if the Notice of Intent to Proceed with Loan Application was not sent to the seller, the seller can
legally keep the buyer’s earnest money even when the buyer was legitimately denied a loan
and supplied the denial letter to the seller within the allowed time period.
This is the relevant language:
Buyer to Notify Seller of Intent to Proceed.
When it is known, Buyer shall promptly notify seller of any mortgage lender to whom Buyer has sent a notice of intent to proceed with loan application and the name and contact information for the loan originator.
Use of Approved Mortgage Lender and Loan Denial Letter.
Buyer may terminate this Agreement without penalty based upon an inability to obtain the
Loan(s) only if Buyer fulfills all of the applicable requirements set forth in this Exhibit. (at the
bottom of the section)
Notice Must be Sent Promptly
What is “promptly?” It’s as soon as the buyer proceeds with a loan application. It is probably
prior to ordering the appraisal. And if the loan is already in denial stage, it’s too late to send it.
This requirement is not new. It has been in the loan contingencies for at least the last 2 years.
What’s new is that we are now seeing that sellers are using an omission of the notice as a
reason to keep earnest money, even when there has been a loan denial within the relevant
time period and a good denial letter.
Approved Mortgage Lenders and Pre-Approval Letters
Including the name of an Approved Mortgage Lender and including a pre-approval letter from a lender are NOT substitutes for the notice. In fact, including the name of an approved lender in the financing contingency may not be to your buyer’s advantage because then a denial letter must come from that particular approved lender.
Add the Notice to Proceed to Your Contract to Close Process
You should add “Send Notice of Intent to Proceed with Loan Application” to your process.
Yes, this is another step, but it is also another way to demonstrate your value to your client by
managing the time limits and requirements to make sure clients are protected.
Intent to Proceed is a step in the loan process which takes place between the Borrower and
the Lender. The Buyer’s Agent needs to tell both Buyer and Lender to alert the agent once
this is done.
On the other side, if you are representing a seller as a client and you did not receive a Notice
of Intent to Proceed with Loan Application from a buyer that did not qualify for a loan and is
terminating for that reason, you should and must inform the seller of the option to retain the
earnest money because ethe buyer has not fulfilled its requirements. Once again, this is
another way to demonstrate your value to your client.
Notice Form GAR 816
The general notice form from GAR should be used to send the notice. The language is simple:
“The Buyer hereby notifies the Seller that Buyer has communicated their Intent to Proceed with Loan Application with (Lender) _______________, Loan Officer, ____________ at (contact
What If the Buyer Decides to Change Lenders?
If the buyer changes lenders, a new Notice of Intent to Proceed with new information must be
promptly sent to the seller.
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