Sourcing fee paid, deal killed by the senior lender's approval clause, and nobody told me that clause existed

The disclosure obligation should sit with the client in the agreement, not with you, because the sourcing fee appears on their loan file and the lender's relationship is with them. That said, you want a written confirmation requirement tied to a specific deadline, something like "borrower shall provide written lender approval of the sourcing fee no later than five business days after commitment letter receipt," so the clock is on paper and not in your memory of a phone call. The gap most agreements leave is what happens when the lender approves the deal but not the fee on the HUD, which is exactly the scenario above: the solution there is an outside-of-closing payment clause that converts the obligation from settlement-dependent to borrower-direct if the lender objects. Before acting on any version of this, I would have a real estate attorney in your state review the language, because fee enforceability outside of closing touches on licensing questions that vary by jurisdiction. What does your current agreement say happens to your fee if the deal closes but the lender refuses to allow the fee on the settlement statement?

This is one of the better practical write-ups in this forum, and the mechanism you described is specific enough to be genuinely useful to anyone running sourcing agreements.

One thing worth adding for anyone reading this who is newer to the structure: a commitment letter is the document a lender issues after approving a loan, laying out the terms it will fund on. The HUD (more commonly called a closing disclosure now) is the settlement statement that itemizes every dollar changing hands at the table. Some lenders include language in their commitment letters that says any third-party fee appearing on that statement must have been disclosed and approved before closing. If the sourcing fee shows up there for the first time, the lender can refuse it.

The practical consequence is what you named. A fee tied to close is only as good as the lender's willingness to allow it on the statement. If the agreement is silent on who discloses the fee and when, the sourcer is exposed to exactly this outcome.

The disclosure timing point is the part I would confirm with a real estate attorney in the relevant state, because the specifics of what a lender can and cannot require on a closing disclosure vary, and some states have rules around how sourcing fees must be characterized. That is a one-question conversation with an attorney, not a long engagement.

I want to flag that everything here is a starting point for your own research, including what I wrote above.

In your current agreements, does the client's financing obligation trigger any disclosure requirement on your end, or is that left entirely to the client?

The clause is standard in commercial commitments and almost nobody in wholesaling reads commitment letters before drafting sourcing agreements.

What you described is a closing condition failure disguised as a fee dispute, and the distinction matters for how you draft the remedy. The sourcing fee surviving the settlement stage depends on the lender's approval, so the fee should be contractually conditional on that approval being obtained by a date tied to commitment, not closing. If you tie the obligation to close, you hand the client an exit: deal dies for any reason, fee dies with it. A separate payment obligation, triggered at commitment approval and payable outside of escrow, breaks that link entirely. Some sourcers get this done by splitting the fee, half at signed contract and half at close, which means at least part of the fee sits outside the lender's jurisdiction from the start.

The question of who carries the disclosure duty is real, but the more useful question is what the written consequence is when the duty goes unmet. Your agreement can name the client as the responsible party and still leave you unprotected if there is no remedy clause for their failure to disclose on time.

What does your current agreement say happens to your fee if the deal closes but the lender refuses to allow the fee on the HUD?

The wholesaler I sit in on puts the disclosure duty on the buyer in his PSA but I have never once seen him follow up to confirm it actually happened before the settlement statement. That gap is exactly what this post is describing.

What I have never seen work is assuming the buyer's attorney caught it and flagged the lender early. Every time I have watched a deal close with a sourcing fee, it surfaced at the HUD review like it was news to everyone in the room.