Denied a cash-out refinance mortgage -- any recourse?

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Denied a cash-out refinance mortgage -- any recourse?

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Last October, my Mom who has dementia (but we didn't know how bad it was at the time) cashed out all her mutual funds and used the proceeds to buy a house. At the time, I had tried to get her to do a mortgage but she was furious with her financial advisor (with good reason, but that's another story) and wanted him out of the loop, so she took all her money away from him and bought a house outright.

Shortly after that I took over handling her finances with her permission and with durable and general POA. I investigated getting a mortgage after-the-fact which is called a cash-out refinance.

So now she owns a house free and clear and has a pension with is fine for usual expenses. The problem is that we have some unusual expenses.

My mom's tax bill from cashing out her funds is about 20 K. Her tax guy suggested filing an extension until we could do the cash-out refinance. There are also assorted bills like ambulance transport and rehab facilities and credit cards for a total of about 30,000.

I initiated the cash-out refinance with US Bank on June 10. I explained the entire situation to them--that I would be doing it as POA, that my mom had dementia, etc. They said that was fine, requested 8 million documents, and said it would be 45 days, or 60 at most. I paid the fee of $350.00 to cover home assessment.

On July 21 I was told it was conditionally approved and would be going to underwriting.

Today I get the call that it has been declined because the POA does not specifically list this property and that we can't do a specific POA because my Mom has dementia.

I wish I could sue them up one side and down the other, but the most I am hoping for is to get the $350 back. They declined my mom for things I told them the first time I called.

Any advice?

Elder Law

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Just thought I would come back and finish off what happened--since i had paid for the application fee using my credit card, I explained the situation to them and they became my advocate. The bank not only refunded the fee, but they doubled it because it was their mistake, and they had made me waste two months on an application that would never get approved. So happy ending! They never should have accepted my application in the first place, based on their rules, or charged me, and the credit card company was able to make them pay up!

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Your going to need to change your screen name to TheHappyOtter!

Btw thanks for the update. It's always nice to hear the end of a story.

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I dont think its about the bank accepting the DPOA but more about underwriters requirements. $ 350 i bet was a fee for the bank to do an evaluation on the property to see if it met the required for a refi. Kinda like paying for a appraiser or home inspection or engineer report - a usual & expected cost.

Why a cash out refi? They have requirements (a solid credit score maybe in 700's, a loan to value ratio, & ownership time on property), that I'd bet your mom can't meet. A cash out refi is a unusual choice for elderly. Why this and not a heloc?

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I'm not surprised. Banks hate POAs. I've come to the conclusion that they LOOK for ways to deny their use. If they don't refund your $350, I'm sure your state has a bank regulatory commission. Report them. I'm fairly confident that will get you your mom's money back.

You might apply to another bank. They all have different rules. I would insist their underwriting dept informally bless the POA before you got into the process.

You could also go for guardianship. May be worth it. Too bad no one stopped mom before she made this mistake.

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Take a look at the DPOA and see if provides general authority to undertake financial transactions. US Bank may not have that much experience in dealing with DPOA transactions and is reading the terms too rigidly. That's sometimes the problem when bankers really don't see the bigger picture.

I found that only Chase had the sophistication to handle an equity loan to the Trustees; the 3 others I consulted really didn't understand how to deal with a trust, or they wanted to advance the entire principal at one time, or charge a higher interest rate. The Chase banker we dealt with even set up a conference call so I could speak directly with the legal department to address their concerns.

Chase also even Fed'Exed me the entire package of loan documents so I could read them before closing, and in some cases, make some corrections to basic information.

If I understand the situation, the cash out generated not only a high income tax bill but tied up your mother's funds so that they're not available for other expenses?

So there's now a liquidity problem for the approximately $30K in expenses?

Since your mother owns the house free and clear, would you consider getting a HELOC? Just thinking out loud here.... I don't know though whether you could get one in your mother's name or in your name; if the latter, you'd probably have to have assets sufficient to pay it off, which would involve your own financial situation.

I don't have any real creative ideas right now, but I'm guessing that someone will come along with some suggestions.

I wouldn't worry about the exact forum for asking this question. It's comingled with other current posts so it will still get attention.

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It's all about risk. When they see huge credit card debt, they figure the borrower does not know how to manage money. They also check the credit rating of the DPOA and they carefully read all the documents looking for loopholes or disclaimers. Of course the $350 is an application fee, like any other mortgage and you don't get it back.

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grumpotter, you mentioned "I wish I could sue them up one side and down the other", sue them for what? Yes, the loan was conditionally approved and would be going to underwriting. That means everything "on paper" looked good and it was sent to underwriting.

It is within underwriting where everything is looked at with a very fine tooth comb, checked and rechecked, and underwriting found some issues. One could still get approval for a loan if the bank could find an investor to cover the mortgage with those issues. Apparently this bank couldn't.

There have been cases where people went to buy a house, apply for a loan, handed in all the paperwork and underwriting jumped through all the hoops and the credit score looks good.... loan approved. BUT.... the day before closing on the house the buyer decides to purchase a brand new car not realizing it will affect his/her credit score and wham, the loan is no longer approved.

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first, I ran into this with my dad's house when he was still living with his/my POA; it was not considered usable for real estate by, not just the "local" banks, but by the courthouse that would ultimately have to approve; well, at least a sale, in this case, but the banks wouldn't approve any type of refinancing, but later after he died I still had problems even getting his money transferred - well, even deposited into another bank, even when I had check in hand, until this one bank that didn't seem to be quite so local, but then found out the one there wasn't so either; well, actually turned out neither were so not sure what the problem was, other than they just didn't want to do it, but this actually checked with their legal department right while I was there and they had them send them the documents I had and approved them, but there were still issues with doing anything with his house, but that was partly because I'm out of state from it, so I finally - ding! - went to one of the big - for here anyway - banks that have branches in both states and asked them and they actually checked with underwriting up front, with someone in particular that they knew to be sure they could do it, but of course dad's already gone now, so don't know if even they would have done it ahead of time; they're pretty particular about real estate, is what they told me, because you're dealing with somebody's home; I suspect, like Maggie said, that now you're going to have to go for guardianship but what I'm wondering is when was she diagnosed with demential; if you can prove it was before she did all this, you might be able to have everything negated. I had some issues like that with dad before he passed regarding a car he bought.

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so now what?

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I was able to get a reverse mortgage which covered Mom's expenses. Since none of her descendants want to inherit her house, it seemed like a good option.

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Denied a cash-out refinance mortgage -- any recourse?

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