Seller has few options when buyer’s ‘preapproved’ loan is canceled

Suing buyers or their bank after a home sale falls apart usually is a fruitless proposition, even if the buyers had a lender’s preapproval for enough financing to close the deal.

Dear Mr. Myers: We accepted an offer two weeks ago to sell our home for $211,000, because the buyers provided a certificate from their bank stating that they were preapproved for a loan of up to $220,000. But now the buyers have notified us that they are canceling the sale because the lender will no longer give them the mortgage that they were promised. Can we keep the buyers’ good-faith deposit and sue them for breaching our contract?

Answer: You could sue, but you probably would not win.

Smart buyers always get “preapproved” for a mortgage before they start shopping for a home. The bank typically issues a letter, certificate or card that suggests that the buyers can borrow a certain amount of money - in this case, $220,000.

If you read the fine print, though, you’ll find that the bank can cancel its preapproval for any number of reasons. Those causes can range from a below-market appraisal of the house that they want to buy to the unexpected loss of a borrower’s job or a sudden drop in the borrower’s credit score.

Your letter doesn’t say why the lender yanked the buyers’ loan preapproval. But if the purchase offer you signed included a standard contingency stating that the buyers are not obligated to complete the transaction if they cannot get suitable financing, you have little choice but to terminate the proposed deal and return the buyers’ deposit.

Filing a lawsuit against the buyers likely would be both costly and fruitless, unless you could prove that they purposely set out to defraud you.

Your best choice would be to agree to cancel the sale, return the deposit and put your house back on the market. With sales strong and prices still rising in most parts of the nation, you shouldn’t have any trouble finding a better-qualified buyer, who might even make a higher purchase offer.

Real Estate Trivia: Rising home prices and an increase in interest rates have pushed up the monthly mortgage payments that a new buyer must make an average of 13 percent from a year ago, according to the National Association of Realtors.

Dear Mr. Myers: Is it true that painting or wallpapering your kitchen or dining area in shades of red can subliminally encourage you to overeat?

Answer: Yes, according to several studies. If you’re planning to give the inside of your home a fresh coat of paint, the colors you choose may help to determine whether you add a few pounds or lose them.

Red seems to be the most “fattening” hue, according to experts at color-specialists Pantone. It increases appetite and raises blood pressure and heart rate.

Red, of course, also is the color of meat. Avoid using it in your kitchen or dining room if you want some subliminal help in curbing your hunger.

The color orange also tends to make homeowners overeat, Pantone says, and so does yellow. But on the upside, yellow also raises the occupants’ energy and happiness.

Want to deter your appetite and maybe even shed a few pounds? Consider repainting or wallpapering in blue or aqua.

Few foods are blue - and those that are sometimes are rotting - so it can send subliminal signals that can make the home’s occupants eat less. Some experts even suggest that you replace your white refrigerator light with a blue one and buy blue dinnerware if you want to curb your eating habits.

Dear Mr. Myers: My father passed away a year ago, and now my mom wants to move into a condo that her sister owns in a big retirement community. I am my mom’s only heir, so she wants to give me her longtime house. For tax purposes, would it be better for her to deed the house to me now, or for me to inherit the property after she eventually passes away?

Answer: I’m sorry about the loss of your father last year, and hope that your mother will live a long time before such tax issues develop. That said, it’s almost always better to inherit a home than to receive it as a gift before the owner dies.

To illustrate, let’s say that your mother and late father had purchased the house several years ago for $25,000 and that it’s now worth $200,000. If your mom signed a gift deed to you now and you immediately sold it for a net profit of $175,000, you would owe tens of thousands of dollars in federal taxes on the sale proceeds because the home was not your principal residence.

Conversely, if you inherit the home from your mother after she passes, the value of the property could automatically be “stepped up” to reflect its value on the day that she died. If the property was worth $250,000 on the day of her death and you sold it for that same amount, you wouldn’t owe any federal taxes at all.

Talk to an accountant or other tax professional for more details. It might make sense for your mother to form an inexpensive living trust now and use it to hold title to her home and other property. After she passes, the trust could allow the house and other assets to quickly be inherited by you instead of going through long and costly probate proceedings.

David W. Myers’ column is distributed by Cowles Syndicate Inc.