Opinion ID: 1299632
Heading Depth: 1
Heading Rank: 2

Heading: Loan Application Process

Text: In February 2006, Sea Cove (with Lohman and Evans acting as personal guarantors) applied for a $2.4 million, twelve-month, speculative construction loan from Harbourside to finance the purchase of the property and the anticipated construction. Harbourside was already the lender for Sea Cove on another project on Hilton Head Island. Harbourside was aware of the proposed closing date for the property. By identical letters dated February 24, 2006, Harbourside wrote separately to Lohman and to Evans, advising them that they were conditionally qualified for the mortgage loan and that [t]his prequalification will expire on May 15, 2005 [sic] and your interest rate will float until closing documents are prepared or you contact your Loan Officer to lock your interest rate by executing a Rate Lock Agreement. Harbourside further advised that the prequalification was subject to (1) receipt of all necessary documentation verifying the information upon which the conditional qualification was based, (2) a satisfactory appraisal, and (3) clear title. Harbourside noted that additional information could be required before final approval. The letters were signed by Ed Brown, who identified himself as Harbourside's president. A loan processor with Harbourside, Kristen Toho, subsequently sent Lohman a Conventional Loan Pre-Approval Needs List on March 7, 2006, which listed specific items that needed to be submitted or verified, such as documents verifying income. The notice included the following statement: These Verification Requirements are needed to complete the full approval process for this loan. Any delays in returning the requested documents in their entirety may delay your loan closing. Lohman sent the requested information to Harbourside the same day. On March 12, 2006, Evans signed a one-page Application Disclosure provided by Harbourside, which informed him of an appraisal and credit report fee and noted: Any responses to the applicant's inquiries DO NOT constitute a commitment to make a mortgage nor do they constitute guarantee of any terms of the mortgage loan. According to Evans, on the day before the scheduled closing date for purchase of the property, he contacted Harbourside to determine the status of the loan and was informed that the loan application had been denied. Approximately a week later, Lohman and Evans each received a separate Statement of Credit Denial, Termination, or Change from Harbourside dated May 22, 2006, which stated the loan was being denied for the following reasons: (1) [i]ncome insufficient for amount of credit requested, and (2) [e]xcessive obligations in relation to income. Sandy Harp, formerly the Quality Control and Loan Compliance Manager for Harbourside, confirmed in her affidavit that the loan application was denied due to insufficient income and unfavorable debt to income ratios; further, she stated the loan also would have been denied based on an unsatisfactory appraisal value for the property (consisting of the site plus construction), which was found to be $2.5 million, some $700,000 less than Sea Cove's projected value of $3.2 million.