Two questions have recently come up concerning the Conventional Loan Contingency Denial Letter and Appraisal.
Where there is a conventional loan contingency exhibit, if the appraisal has not been completed prior to the end of the appraisal & finance contingency, can the buyer terminate the contract with a loan denial letter, based upon the reason "insufficient property data?"
Use of Approved Lender and Loan Denial Letter was expanded in the 1/1/2022 printing to include new sections (e) and (f), reasons upon which a loan denial letter may not be solely based:
(e) the Property not appraising for at least the purchase price unless this Agreement is subject to an appraisal contingency and an appraisal meeting the requirements of this Agreement has been performed; or
(f) the lender not having completed underwriting the loan request.
Therefore, an appraisal not being completed is not a valid reason for a denial letter during the finance or appraisal contingency. So, if an appraiser hasn’t met a loan deadline, the buyer cannot use that as a sole basis for a loan denial letter. It is not considered “insufficient property data.”
Where there is an “Approved Lender” included in paragraph 2 and the buyer chooses to use a non-approved lender, can a low appraisal ordered by the non-approved lender’s appraiser trigger the buyer’s remedies for a low appraisal in paragraph 11? That is, would the buyer still be able to ask the seller for a price reduction or terminate the contract per the Appraisal Contingency?
The simple answer is yes. The forms committee intended that a buyer could ask for a reduction based on a low appraisal from an appraiser selected by any Lender, not just an “Approved Lender.”
The buyer loses the ability to use a loan denial letter from a non-approved lender, but the buyer’s right to ask for a reduction in price or termination for a low appraisal stands – even if it is from the non-approved lender’s appraiser.
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