Seller has few options when a buyer's 'preapproved' loan is nixed

Q. We accepted an offer last month to sell our home for $245,500, in part because the buyers provided a letter from their bank stating they were approved for a loan of up to $275,000. But last week, the buyers notified us they are canceling the sale because the lender will no longer give them the mortgage that they were promised. Can we sue the buyers or the bank for misrepresentation or fraud?

A. 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 the buyers can borrow a certain amount of money — in this case, $275,000.

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

Your letter does not say why the lender yanked the buyer's loan preapproval. But if the purchase offer you signed included a standard contingency stating that the buyer isn't 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 they purposely set out to defraud you or the bank. Successfully suing the lender itself would be an even bigger long shot, because its highly paid lawyers almost surely would be able to show they had a good reason to cancel the borrower's preapproval and therefore cannot be held financially liable for a real estate deal that fell apart.

Your best move now would be to agree to cancel the transaction, return the buyers' deposit and put your home back on the market again. That would 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 cannot win.

Q. My credit score is pretty lousy, but I want to buy a house and so I went to one of those free “credit-repair” seminars that are advertised on TV. It was basically a waste of time, because the speaker mostly wanted to sell his expensive books and CDs. But one suggestion he made left me wondering: Can getting a federal “taxpayer identification number” allow me to get a mortgage without disclosing my Social Security number and avoid the bank from discovering my crummy credit history?

A. Probably not. Plus, getting taxpayer identification number — commonly called a TIN — could put you in hot water with both the Internal Revenue Service and law-enforcement authorities if you misuse it.

Virtually anyone can get a TIN and then use it to apply for a mortgage or other types of credit. Most are issued to businesses or to immigrants who don't have a Social Security Card.

Yet, even if you have a Social Security card, obtaining a TIN to get a mortgage or obtain other credit can get you into trouble. For example, it's illegal to apply for credit with a TIN instead of a SSN if you are simply trying to elude existing creditors or law-enforcement officials. Penalties can include hefty fines and even prison.

In short, relatively few individuals can benefit by getting a TIN. Those who do must be careful how they use it.

Q. The company that provides our homeowner's insurance policy gave us a check last week for all of the $4,200 in repairs that we had to make after our basement flooded in late April. Do we have to pay federal income taxes on the amount?

A. No. The check you received merely allowed you to restore your home to its earlier condition, so there's no profit for the IRS to tax.

The fact that the insurer fully reimbursed you for the needed repairs, though, means that you will not be able to claim a large casualty-loss deduction on the income-tax return that you file next year.

Ÿ For the booklet “Straight Talk About Living Trusts,” send $4 and a self-addressed, stamped envelope to David Myers, P.O. Box 4405, Culver City, CA 90231-4405.

© 2012, Cowles Syndicate Inc.