Suing a buyer who can’t get a mortgage needed to complete a home sale is usually a “no-win” proposition.
DEAR MR. MYERS: 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, which would be more than enough to complete the transaction. Last week, the buyer notified us that he is canceling the sale because the bank will no longer give him the loan that he was promised. Can we sue the buyer or bank for misrepresentation or fraud?
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.
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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 both time-consuming and 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.
I’m sorry, but your best move now would be to agree to terminate the sale, return the buyer’s deposit and put your home back on the market again. It might be a hassle, but it’s a better alternative than tying your property up for months by filing a costly and time-consuming lawsuit that you almost certainly will not win.
DEAR MR. MYERS: What is the maximum amount that a real estate agent can charge to sell a house?
ANSWER: Federal anti-monopoly laws clearly state that real estate commissions are negotiable. So, there’s no preset maximum or minimum amount that an agent can charge to sell a house. Most agents, however, demand a commission equal to 5 or 6 percent of the property’s final selling price.
DEAR MR. MYERS: I have a good credit record, but am planning to marry a man who filed for bankruptcy last year. We hope to buy a house together this spring. How will the bankruptcy that he filed while he was single affect our chances of getting a mortgage after our wedding?
ANSWER: Not long ago, many banks simply wouldn’t give home loans to applicants who had filed for bankruptcy in the previous year or two. But most lenders today are more lenient, so getting a mortgage with your soon-to-be husband shouldn’t be a problem.
The catch is that banks usually charge a higher interest rate or fees to borrowers with a bankruptcy on their record. So, the larger issue here is whether you should apply for the home loan in your name only or whether the two of you should apply together.
Ask a few lenders and mortgage brokers how your fiance’s bankruptcy filing last year will affect the loan application. Also ask for two written quotes: The first for the deal the two of you would get by applying jointly, and the second for the terms that you alone would get if you personally applied in your bankruptcy-free name only.
If the terms would be the same, you could apply for the mortgage together. But if you would get a better financing package because your credit rating is higher than his, you could apply for the loan by yourself and then put him on the title to the home after the wedding.
Remember, though, that bankruptcy laws are complicated. Your fiance’s name shouldn’t go on title to the property until the two of you have talked with an attorney to ensure that his current and previous creditors couldn’t place a lien on the new home in order to collect his unpaid debts.
David W. Myers’ column is distributed by Cowles Syndicate Inc.