Case Study: Loan 1380 – Grant

Borrower: Grant
Loan Type: DSCR Refinance Auction
Status: Loan Stopped During Processing Due to Property Flooding

Background:

Grant, an investor looking to refinance his property, sought out Nadlan Capital Group’s services through our auction platform. At the start of the process, he stated that the property was in C4 condition (classified as average and well-maintained). Based on this information, the loan was moved forward, with escrow and appraisal fees collected, and the file was officially entered into processing.

Process:

Auction Launch
Grant deposited the required escrow funds and signed the auction and NDA agreements, marking the beginning of the loan processing journey. Lenders quickly began reviewing the file, under the assumption that the property was in C4 condition as described.

Appraisal
To ensure the property met the necessary standards for the loan, a licensed appraiser was sent to inspect the property. Upon completing the inspection, the appraiser’s report revealed an unexpected issue: flooding damage that was not initially disclosed. The damage caused the property’s condition to fall below C4, making it ineligible for the intended Debt Service Coverage Ratio (DSCR) program.

Borrower Request:

Upon learning that the loan could not proceed due to the property’s condition, Grant requested a refund of both the escrow deposit and the appraisal fee. His frustration stemmed from the fact that the unforeseen flooding issue led to an unexpected halt in the process, causing him to seek reimbursement for the expenses.

Refund Policy:

Escrow Deposit:

The escrow deposit was intended to cover the costs of running the auction, reaching out to lenders, and processing the loan. As per Nadlan Capital Group’s refund policy, the escrow deposit is non-refundable except under two specific circumstances:

1. Successful Loan Closure: If the loan successfully closes, the escrow deposit is reversed back to the borrower once the broker’s fee is received (outside of the HUD).
2. Rate Increase by 0.25% or More After Appraisal: If the lender increases the loan rate by 0.25% or more after the appraisal, a refund of the escrow deposit is issued.

The escrow deposit is not refundable if the loan cannot close due to borrower-related or property-related issues, such as undisclosed flooding.

Appraisal Fee:

The appraisal fee is paid directly to the independent appraiser who conducts the inspection and provides the report. Once the inspection and report are completed, the appraisal fee is non-refundable, as it compensates the third-party appraiser for the services rendered, regardless of the loan’s outcome.

Outcome:

Due to the property’s unexpected flooding condition, Loan 1380 did not close. Since the loan could not proceed, and there was no rate increase from the lender after the appraisal, the escrow deposit could not be refunded. Additionally, since the appraisal fee had already been paid to the appraiser for the completed inspection, it was non-refundable under the terms of the agreement.

Key Takeaways:

• Accurate Condition Disclosure Is Crucial: It is vital to disclose the true condition of the property upfront. Inaccurately declaring the property as C4 when flooding was present led to delays, additional costs, and ultimately a failed loan.
• Escrow Refunds Are Conditional: Escrow funds are only refundable if the loan closes successfully or if there is a significant rate change after the appraisal. Refunds are not provided when the loan fails due to borrower or property-related issues.
• Appraisal Fees Are Non-Refundable: The appraisal fee is paid for the services of an independent third-party appraiser. Once the inspection and report are completed, the fee is non-refundable, regardless of the loan outcome.
• Clear Communication and Accurate Intake: Ensuring that all details are correct and transparent from the outset is essential for avoiding frustration and confusion down the line. This case emphasizes the importance of providing accurate information at intake to avoid potential roadblocks in the loan process.

Final Thoughts:

While Loan 1380 couldn’t proceed due to undisclosed flooding, Nadlan Capital Group’s processes still ensured that the situation was handled transparently and in accordance with standard policies. The escrow and appraisal fees remained non-refundable, as they were tied to services provided up to that point.

For borrowers like Grant, we emphasize the importance of accurate property assessments early in the process to avoid unnecessary delays and costs. While this specific case ended without closure, we are always available to revisit loan options once any property issues are resolved, ensuring that our clients have the best chance for success in the future.

Borrower-Facing Response:

Hi Grant,

Thank you for choosing Nadlan Capital Group for your financing needs, and we truly understand your frustration with the appraisal results and the unforeseen flooding condition.

Unfortunately, we are unable to refund the escrow deposit or the appraisal fee in this case. Here’s a brief explanation:

• Escrow Deposit: The deposit is used to cover the cost of running the auction, processing, and lender outreach. It’s only refunded if the loan successfully closes or if the lender increases the loan rate by 0.25% or more after the appraisal. Since the loan could not close due to the property’s condition and the rate did not change, the escrow is not refundable.
• Appraisal Fee: The fee is non-refundable as it is paid directly to the third-party appraiser who has already conducted the inspection and provided the necessary report.

These terms are consistent with industry standards and were part of the agreements signed at the start of the process.

Once the flooding issue is resolved, we would be happy to discuss potential financing options and proceed with your loan at that time.

Best regards,
Nadlan Capital Group

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