Can you sue a mortgage bank for having drastic differences between pre-approval and actual loan offer?

Question

I'm recently trying to acquire an investment property (a single family house) in the USA. I have self-employment income and payroll income from the same company, my wife as well, and I also have recent payroll history with a different company.

I had refinanced my personal home with this bank only a few months ago, so they had all my paperwork. In discussing pre-approval for this investment property, I explained then that my company has less sales than pervious periods, but also far less costs (all COVID related). In other words, in terms of cash and ability to payout member draws, it's doing just fine. The banker assured me this wasn't an issue and they pre-approved us for a $245K loan.

It turns out that the "underwriters" don't like the company P&L (which includes, among other things, esoteric items such as asset depreciation), so therefore only will offer $143K in loaning! I was shocked, to say the least. I mean, a few 10's less I could see happening, but nearly 50%?

I feel mislead and if this deal falls though I stand to lose several thousands of dollars, plus time and opportunity. I want to sue the bank for not being clear with me at the outset regarding what amounts they'd be willing to loan. Is this an item which has precedence? Is there any avenue to successfully sue this bank? Even if the deal does go through, it looks like at this point I'd have to find a co-signer (far from ideal or desirable) and would likely cause several weeks of delay. I might consider suing even then, if that is possible.

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I searched around a bit for what kind of responsibilities leaders have and found lenderliabilitylawyer.com. Their resource page suggests that "Misrepresentations in the application and commitment process" is a suable offense these days, though was less so in the past. In terms of "commitment", I don't believe the bank has made any, technically. However, it's the drastic change between the pre-approval and the offer, and the fact that no offer can be made until I've already risked considerable funds and effort, that leads me to believe a suable offense has occurred.

Answer 1

As mentioned in Fattie's answer, you can sue for pretty much anything. But to have a realistic chance of prevailing, you'll need to be able to make the case that you were harmed in some way. And that the harm arose from the acts of the defendant. And that those acts were in some way improper or illegal.

Let's look at those aspects and see how they apply to your proposed case.

Were you harmed?

You mention "I stand to lose several thousands of dollars". You'll need to be more specific about how and why you lost money. And why that loss was caused by the defendant telling you that you were pre-approved for a $245k loan.

While we are on the topic of the pre-approval, how was that pre-approval communicated to you? Verbal or writing? Did it contain any caveats, like "subject to final approval by our home office", or "subject to no material changes in the applicant's financial position". As Fattie says, the bank most likely has some language in that pre-approval to make it clear that it isn't an iron-clad guarantee.

Did that harm arise from the acts of the bank?

This one shouldn't be too hard, depending on the nature of that "thousands of dollars". For example, perhaps you paid for an inspection, or paid a non-refundable deposit on a $245k piece of property. And you now can't complete the sale because you can only borrow $143k.

And that brings up another digression -- how much could you borrow from another lender? If the answer is $245k, you can complete the purchase, maybe with some delay. If the answer is $143k, then the revised approval from the original bank is seeming rather legitimate.

And a digression to the digression -- borrowing that much money to buy investment property is not something that I'd recommend. As you are finding, borrowing money introduces risk and complexity to the process. You'll be much better off to buy an investment property that you can afford with money you have already saved up. Then use the income from that property to save up money for a second property. And so on.

Were the defendant's acts improper or illegal?

This one gets fuzzier. You can sue for anything you like, but if what the defendant did was legal, and within the realm of ordinary and reasonable practices in their field, you'll have a hard time winning. Maybe they gave you a written approval with no caveats, and maybe that could be viewed as a contractual agreement. But that's a stretch.

Summary

• Yes, you can sue.
• Given the facts presented in your question, it doesn't look promising.
• Consult a lawyer. (Or clarify some of the details and ask on https://law.stackexchange.com/.)

Answer 2

For the sake of an answer,

1. In the abstract, yes, this is completely actionable. 100%. Their actions harmed you. Note that I'm not saying you will "win", but it's actionable.

2. In the US, the question "Can I sue?" is in effect equivalent to asking "Can I find a lawyer who will take on the case on contingency?"

3. (Obscurely, if you're very rich, you can sue someone, paying your own money to do so. So, out of pure spite, and with no concern for the fact that it will cost you 10s or 100s of thousands of bucks, you can sue someone. So sure, you can "spite sue" in this case, but it's utterly unrealistic as you will have to pay 5 to 6 figures up front to do so.)

4. So the question is "Can I find a lawyer who will take on the case on contingency?"

5. Unfortunately the answer is very likely a blunt "No" because of two distinct reasons: (A) the amount the lawyer would win, is too low. (B) my raw-guess is that in fact you'd "lose the case": quite simply, the bank inevitably has epic boilerplate language you've already signed covering them against exactly your issue.

6. THAT BEING SAID, immediately pick up a phone and call a few lawyers. I may be wrong, one of them may say "Hell Yeah, get on over here."

The overwhelming takeaway: in the US whenever you have the question "Can I sue?", because the USA is awesome, just phone a lawyer. And you'll have the answer.

7. Bonus: the "class" aspect. Say something minor happens to you in the US, and because of (5A) you won't be able to sue. Occasionally, by magic, you will find yourself part of a class action. A class action is a mechanism for lawyers to make money from a group of people who were harmed. It's theoretically conceivable that the problem you describe already enjoys a class action; in which case point 6 is again the solution.

And furthermore...

Because the US is amazing, usually when something has happened to you there are a whole group of "specific" lawyers who deal with just that "type" of problem.

Indeed, you have googled up such a practice (there will be many more - law today is law by SEO!)

You'll find when you call them that they are INCREDIBLY helpful, particularly in the case where they can't directly help you but they can tell you who else to call or whatever. (These "focussed" legal shops particularly make a point of bending over backwards to be helpful to any and all callers, it's worth the bottom-line cost to them for rep.)

Be aware that at first on the phone you'll get a (very helpful) lower-level employee such as a legal intern or freelancer, but they'll soon hook you up with the info you need or pass you along in the practice.

So go right and and phone the (inevitably free) 800 number, good luck! After doing so you will know far more than you do now.