Lock Extension Fee on a Delayed Refinance
Angela Ruiz applies for a $320,000 rate-and-term refinance of her Lexington condo. Her 45-day lock at 6.250% expires Thursday, May 15. Closing is set for Monday, May 12. On May 6, the appraisal comes in at $298,000, below the $315,000 estimate. Angela disputes the value, and the lender's appraisal review adds eight days. The closing is moved to Thursday, May 22. The lender's lock extension fee is 0.125% of the loan amount, or $400, for a seven-day extension. Angela's loan officer, Todd, tells her, “Don't worry, the seller will cover the extension fee,” even though this is a refinance and there is no seller. The lender also sends a revised Closing Disclosure on May 16 showing the $400 fee. Angela asks whether she can be charged and whether she can close May 22.
1. Can the lender charge Angela the $400 lock extension fee? What facts determine whether the charge is permissible and disclosable?
Read the worked answer
A lock extension fee can be charged only if the lock agreement permits it, the fee is disclosed, and the delay is not caused by the lender's own failure. Here the delay arose from Angela's appraisal dispute and the lender's review, so the facts may support a borrower-caused extension. But the $400 cannot be sprung at closing. It should be disclosed on a revised Loan Estimate when the extension is requested, and on the Closing Disclosure. If the fee is a new lender charge not caused by a changed circumstance, zero-tolerance rules may require a cure. The lender should confirm the lock agreement's extension price and whether the investor permits the charge. Angela must receive the CD no later than three business days before consummation; a May 16 CD for a May 22 closing generally satisfies that if delivery is proper.
2. Todd's statement that “the seller will cover” the fee creates what problems? Identify the ethical and compliance issues.
Read the worked answer
Todd's statement is a misrepresentation. This is a refinance; there is no seller to pay the fee. Even if Todd meant the lender would absorb it, he created a false expectation about Angela's cash to close. That can be a UDAAP violation and an ethical violation, and it exposes the lender to a demand for reimbursement and regulatory criticism. Todd should immediately correct the statement in writing, explain the actual $400 charge and who will pay it, and provide an accurate CD. He should not let Angela close while she relies on the false statement.
3. What should Todd do before May 22 to resolve the fee and disclosure?
Read the worked answer
Before May 22, Todd should obtain the written lock extension terms, determine whether the fee is valid, and get Angela's written acknowledgment if the fee will be charged. He should issue a corrected CD showing the $400 and any changed cash to close, deliver it at least three business days before consummation, and document the appraisal-dispute timeline. If the lender caused the delay or the fee is not permitted, the lender should waive or cure it. If Angela does not receive a correct CD in time, the closing must be delayed. Todd should also notify his compliance department about the false statement.