Is any of it illegal? Please help

[YarDost]

What is the name of your state (only U.S. law)? Texas

We are in the process of buying a house that has no flooring, since the previous owner had pulled up all carpet with the intention of replacing it but never did. We have a signed contract in place.
During the financing period, we found out that the house was actually a flip where the seller had closed on the house only about a week before us signing contract on it. The lender backed out after finding this out.
Now, no one is willing to finance the house since not only does the house has no flooring, the seller has not been on the title for at least 90 days, and the seller is selling the house for almost $40k more than what they paid for it without making any improvements.
Before we found out this house was a flip, we singed a release of earnest money agreement if we fail to close. Since we are not able to close due to the status of the house, what are the chances the seller would try to keep the earnest money?

The house was listed originally three weeks before we ended up signing the contract. Our agent tried submitting an offer at that time but was told by the selling agent X that the house was already sold the day before.

The selling agent X was is also the selling agent for the current seller. The house was purchased through an intermediary from the agent X's office by his girlfriend (hear say at this point). He is now selling it for her, though he kept the MLS listing open from the first time the house was listed while negotiating with us. This kept our agent from finding out there was a sale on the property since it was originally listed. We had assumed that the first contract had fallen through as that is what Agent X told us when he called us to let us know the property was available if we were still interested.

Initially we had agreed to go with their recommended lender assuming no one else could get financing on a house with no flooring. Once we realized that their lender was charging us exorbitant amount of fee and higher then normal interest rate, we looked around and found an alternate lender who would do a escrow hold back. This is the lender that backed out after finding out about the flip. Later lenders were unwilling to finance due to the condition of the property, as it needed repairs, and due to the descrepencies on the MLS listing and title.

Their argument is that if we had stayed with their recommended lender, who apparently was aware of the flip status, we wouldn't be in this situation where we are not able to find financing. Now we are a few days away from closing and their recommended lender is no longer willing/able to do the financing.

[FlyingRon]

Unless you have some financing contingency that you have met the requirements of, you're going to have a hard time getting the earnest money back. In themselves none of the conditions you indicate: no carpets, no improvements done, the disparity in the sellers purchase/sales price, etc... are going to get you far.

I'd recommend consulting a RE lawyer to review the contract to see if there is anything you can do.

[JETX]

Originally Posted by YarDost

What is the name of your state (only U.S. law)? Texas

We are in the process of buying a house that has no flooring, since the previous owner had pulled up all carpet with the intention of replacing it but never did. We have a signed contract in place.
During the financing period, we found out that the house was actually a flip where the seller had closed on the house only about a week before us signing contract on it. The lender backed out after finding this out.
Now, no one is willing to finance the house since not only does the house has no flooring, the seller has not been on the title for at least 90 days, and the seller is selling the house for almost $40k more than what they paid for it without making any improvements.

None of that is relevant to your contract.

Before we found out this house was a flip, we singed a release of earnest money agreement if we fail to close. Since we are not able to close due to the status of the house, what are the chances the seller would try to keep the earnest money?

My OPINION.... 100%

The house was listed originally three weeks before we ended up signing the contract. Our agent tried submitting an offer at that time but was told by the selling agent X that the house was already sold the day before.
The selling agent X was is also the selling agent for the current seller. The house was purchased through an intermediary from the agent's X office by his girlfriend (hear say at this point). He is now selling it for her, though he kept the MLS listing open from the first time the house was listed while negotiating with us. This kept our agent from finding out there was a sale on the property since it was originally listed. We had assumed that the first contract had fallen through as that is what Agent X told us when we called us to let us know the property was available if we were still interested.
Initially we had agreed to go with their recommended lender assuming no one else could get financing on a house no flooring.

NOT RELEVANT.

Once we realized that their lender was charging us exorbitant amount of fee and higher then normal interest rate, we looked around and found an alternate lender who would do a escrow hold back. This is the lender that backed out after finding out about the flip.

Again... NOT RELEVANT to your contractual obligation.

Their argument is that if we had stayed with their recommended lender, who apparently was aware of the flip status, we wouldn't be in this situation where we are not able to find financing.

Bottom line... no one can tell you what you HAVE to do without actually READING the contract you signed. Take it to a local attorney who can review ALL the RELEVANT facts.... and take action to protect you (if any).

[YarDost]

Thanks for the replies.

So the fact that they tried to conceal the flip status of the house, which is the reason we lost financing, is not relevant? The denial letter states it was the house and not us that was the cause of the financing to fail. The contract states if we are not able to close on the house due to the property not being financiable, we could walk away. Their argument is that it is financiable by their lender. There is nothing against forcing a buyer to go with a particular mortgage agent, who the seller knows and who is charging $2000 more than any one else?

[Some Random Guy]

The fact that they recently purchased the home is not a material defect that requires disclosure. The fact that they planned to make money on selling the home for more than they paid for it is not a material defect that requires disclosure. Both of these facts are easily found through public records.

"Flipping" is not a crime.

[JETX]

Originally Posted by YarDost

So the fact that they tried to conceal the flip status of the house, which is the reason we lost financing, is not relevant?

Correct. Their 'flip status' may certainly have affected the underwriting policy of your lender, but unless there is a 'no flip clause' in your PURCHASE agreement, it is not relevant to the contract.

The denial letter states it was the house and not us that was the cause of the financing to fail. The contract states if we are not able to close on the house due to the property not being financiable, we could walk away.

You need to re-read your agreement... and presumably, the facts. If your agreement has a 'financial contingency' (escape) clause, it would be common for your lender to provide a letter EARLY in the process, stating either approval or denial of your application. Did the lender provide a 'we will finance' letter earlier?? If so, that letter would 'resolve' the contingency obligation. A subsequent 'we won't finance' letter may or may not reinstate the clause. It would require a FULL review of all the facts (by YOUR local attorney) to see if that happened... and could 'trigger' the clause again.

Their argument is that it is financiable by their lender. There is nothing against forcing a buyer to go with a particular mortgage agent, who the seller knows and who is charging $2000 more than any one else?

Again, YOUR local attorney would need to review all the documents and see if there is a 'you agree to use our lender' (or similar) clause in the contract.

Summary, there are a LOT of complex issues in your situation. You would be best served by getting with a LOCAL attorney who can review ALL of your documents, set a time line and discuss the FACTS with you.

[YarDost]

This is what the language of contract states:

FINANCING: The portion of Sales Price not payable in cash will be paid as follows: (Check applicable boxes below)
El A. THIRD PARTY FINANCING: One or more third party mortgage loans in the total amount of $ XXX
(1) Property Approval: lf the Property does not satisfy the lenders' underwriting
requirements for the loan(s);this contract will terminate and the earnest money will be refunded to Buyer.

[FlyingRon]

If there was no time or other constraints that you missed, and you did try to obtain financing, this clause would be an out.

[JETX]

Originally Posted by YarDost

This is what the language of contract states:

FINANCING: The portion of Sales Price not payable in cash will be paid as follows: (Check applicable boxes below)
El A. THIRD PARTY FINANCING: One or more third party mortgage loans in the total amount of $ XXX
(1) Property Approval: lf the Property does not satisfy the lenders' underwriting
requirements for the loan(s);this contract will terminate and the earnest money will be refunded to Buyer.

And as I said before.... Did the seller get a 'financing approved' letter from your lender, either directly or through your agent???

We can GUESS what your legal obligations MIGHT be, based SOLELY on the very limited information you have provided....

Let me repeat my earlier post:
"there are a LOT of complex issues in your situation. You would be best served by getting with a LOCAL attorney who can review ALL of your documents, set a time line and discuss the FACTS with you."