American consumers are often quite familiar with the concept of pre-approval for a variety of services. Credit card applications arrive in the mail attached to pre-approved lines of credit. Vacation packages associated with timeshares arrive pre-approved and only require confirmation of receipt in order to book. However, not every pre-approved offer should be taken advantage of and not every pre-approved offer is even a genuine offer.
There is a critical difference between preliminary mortgage approval and pre-approved mortgage offers. Preliminary mortgage approval is simply the first step in the home owning process. Pre-approved mortgage offers are often defective mortgages waiting to be executed. More often than not, any documentation presented as a pre-approved mortgage offer is full of terms far more favorable to the lender than to the buyer. In addition, terms outlined in pre-approved offers are not often as favorable as buyers could receive under other circumstances.
Other problems with pre-approved mortgages include the fact that they are not ordinarily reviewed by underwriting experts, their terms are not always completely fixed and they are not subject to appraisal. Pre-approvals are often drafted based on a broad profile of the potential buyer, not specific and highly-researched credit checks and qualifications.
If your documentation has been prepared by a loan officer rather than an underwriter, you are likely in possession of a pre-approved mortgage rather than preliminary mortgage documentation. Your bank may not be willing to provide you with more solidly drafted documentation simply because the industry has moved towards more automated processing. As a result, it is critical that you speak with an experienced attorney before you sign any final documentation. Failure to address the holes in a potentially defective mortgage now could make paying off your home much more complicated later.
If you are facing threats of foreclosure on a potentially defective mortgage, it is also critical that you contact an experienced attorney. A strong advocate may be able to help you keep your home and obtain some recourse from those who took advantage of you originally.
Source: Forbes, " Why Getting Pre-Approved For A Mortgage Is A Sham," Mark Greene