About Real Estate: Sellers in bind after buyers ‘preapproved’ mortgage is canceled
Smart buyers always get #147;preapproved#148; for a mortgage before they start shopping for a house, but banks have lots of leeway to back out of their commitment.Q. We agreed to sell our home to a young couple last month for $180,000. The buyers had a #147;preapproval#148; certificate from a bank that said they were qualified to borrow up to $200,000, which would obviously be more than enough to complete the transaction. But last week, the buyers notified us they are canceling the sale because the bank will no longer give them the loan that was promised. Can we sue the buyers or the bank for fraud or misrepresentation?
A. 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 #147;preapproved#148; for a loan. The lender they choose typically issues a letter, certificate or card that says they#146;re able to borrow a certain amount of money #8212; in this case, $200,000.
If you read the fine print, however, you#146;ll see that most preapproval documents or cards specifically say 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#146;s credit rating.
Your letter doesn#146;t state why the bank suddenly yanked the couple#146;s loan approval. But assuming the purchase offer you accepted includes a standard contingency stating that the buyer isn#146;t obligated to complete the transaction if suitable financing cannot be arranged, you have little choice but to terminate the deal and return their good-faith deposit.
Filing a lawsuit against the buyers would likely be both time-consuming and fruitless, unless you can show they purposely set out to defraud either you or the bank. Filing suit against the lender would be an even bigger long shot, because its highly paid lawyers surely would be able to prove the bank had a good reason to cancel the applicant#146;s earlier loan approval and therefore cannot be held liable for the home sale that fell apart.
Canceling the sale and putting your home back on the market would be a painful hassle, but it#146;s a better alternative than tying your property up for months by filing a costly and time-consuming lawsuit that you almost certainly would not win.
Q. You recently wrote that a bankruptcy can stay on a consumer#146;s credit record for up to 10 years. But how long does #147;good#148; information about past payments stay on file?
A. Positive information, such as prompt payments on active credit-card accounts or automobile loans, remains on a report indefinitely and continue to gradually increase a consumer#146;s credit score. Info about accounts that were closed in #147;good standing#148; generally stays for 10 years, just as most bankruptcies would.
Q. I recently heard that my favorite magician, David Copperfield, owns several islands off the coast of South Florida. Is this true? If so, do you have any details?
A. Yes, it#146;s true. And yes, I have details.
Copperfield, the illusionist who gained fame by making the Statue of Liberty #147;disappear#148; on live television in 1993, started buying several islands in an area known as Exuma Cays about five years ago.
Exuma Cays is a 365-island archipelago in the Bahamas, about 300 miles south of Miami. Many of the islands have never been occupied by humans.
Copperfield spent about $50 million for the 11 islands he now owns, plus another $30 million to renovate a high-end but outdated hotel resort. Recently renamed The Islands at Copperfield Bay, its website (www.mushacay.com) offers rates for a group of 12 starting at $37,500 per night.
To double the party by hosting 24 family or friends during the holiday season, figure on spending at least $54,000 per night #8212; assuming that you#146;ll sign a minimum 14-night contract.
Despite the high prices, actress Penélope Cruz was married there, as was Google co-founder Sergey Brin. The country-singing duo of Faith Hill and Tim McGraw purchased a previously undeveloped island in the same area more recently and is now putting the finishing touches on a plantation-style main house that also includes three smaller homes for a property manager and staff.
Ÿ For the booklet #147;Straight Talk About Living Trusts,#148; send $4 and a self-addressed, stamped envelope to David Myers/Trust, P.O. Box 2960, Culver City, CA 90231-2960.
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