Sellers have few choices when a buyer’s loan is denied
Question: We accepted an offer to sell our home in January for $210,000. The buyer had a certificate from a bank that said he was qualified to borrow up to $220,000. Last week, the buyer notified us that he is canceling the sale because the bank will no longer give him the loan. Can we sue the buyer or bank?
Answer: You could sue both the buyer and the bank for misrepresentation or anything else you wish, but you probably would not win.
Savvy buyers always get preapproved for a loan. The lender they choose typically issues a letter, certificate or card that says they’re able to borrow a certain amount of money — in this case, $220,000.
If you read the fine print, however, you’ll see that most preapproval documents or cards specifically state that the lender is not obligated to issue a mortgage for the stated amount. Banks can cancel a preapproved mortgage for any number of reasons, ranging from a below-market appraisal to even the most modest of downgrades to the loan applicant’s credit rating.
Your letter doesn’t state why the bank suddenly yanked the buyer’s loan approval. But assuming that the purchase offer you accepted includes a standard contingency stating that the buyer isn’t obligated to complete the transaction if he can’t get suitable financing, you have little choice but to terminate the deal and return his deposit.
Filing a lawsuit against the buyer likely would be fruitless, unless you could show that he purposely set out to defraud either you or the bank. Filing suit against the lender would be an even bigger longshot bet, for its highly paid lawyers would surely be able to prove that the bank had a good reason to cancel the applicant’s earlier loan approval and therefore cannot be held liable for the home sale that fell apart.