Prequalification That Became an Application
On Monday a borrower calls your Indiana call center and says, 'I want to see if I can afford a $350,000 house in Fishers. I haven't picked a property yet, and I don't want my credit pulled.' You collect name, income ($7,500/month), Social Security number, and the desired loan amount, but no property address or sales price. You run a soft prequalification using stated numbers and tell him he looks fine. On Wednesday he emails a fully executed purchase agreement for $345,000 with a $5,000 earnest money deposit and says, 'Go ahead and process.' You order the appraisal Thursday and collect a $550 appraisal fee by credit card Friday. You mail the Loan Estimate Friday. On Monday the borrower says he never received the LE and wants to cancel because he found a better rate.
1. When was the TRID application complete, and when was the Loan Estimate due? Did mailing it Friday comply?
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Under TRID, an application is complete when the creditor receives six pieces of information: borrower name, income, Social Security number, property address, estimated value, and loan amount. Monday's call had name, income, SSN, and loan amount, but no property address or estimated value. The Wednesday purchase agreement supplied the property address and sales price, so the application became complete Wednesday. The LE is due no later than three business days after application. If the office is open Monday through Friday, Thursday is day one, Friday is day two, and Monday is day three; mailing Friday is within the three-business-day period if it was placed in the mail by the end of Friday. But mailing is not the same as borrower receipt for fee-collection and intent-to-proceed purposes. Keep proof of mailing and the delivery method; if the borrower says he never received it, re-deliver and document.
2. Was it permissible to order the appraisal and collect the $550 appraisal fee on Friday? What should have happened?
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No, not on these facts. Before the borrower receives the LE and indicates an intent to proceed, the creditor may collect only a credit report fee. The borrower's Wednesday 'go ahead and process' came before the LE was delivered, so it cannot be a valid intent to proceed under TRID. Ordering the appraisal Thursday and charging the $550 Friday - before the LE was received - is a disclosure and fee-collection violation. The correct sequence: deliver the LE, give the borrower time to review it, obtain a clear intent to proceed (which can be written or oral, but document it), then order the appraisal and collect the disclosed fee. If the fee was collected improperly, refund it or apply it only after a valid intent to proceed; do not simply keep it and argue the borrower said go ahead. Also confirm the $550 is within the zero-tolerance appraisal fee.
3. The borrower now wants to cancel. Does he have a federal right of rescission? What should you tell him?
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No. TILA's three-business-day right of rescission applies to certain refinances and home-equity loans secured by a principal dwelling, not to a purchase-money mortgage. The borrower can still cancel the purchase contract according to its terms, but that is a contract issue, not a federal rescission right. Tell him the truth: there is no federal cooling-off right on this purchase; the earnest money and any termination rights depend on the purchase agreement and Indiana contract law. As for the appraisal fee, if the appraisal was ordered after a valid intent to proceed, the fee may be owed for services performed; if it was collected improperly, address it under the disclosure rules. Do not tell him he has a right he does not have, and do not threaten that he cannot cancel the contract at all.