Can a borrower take legal action against the lender if they were improperly qualified for a mortgage?

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Can a borrower take legal action against the lender if they were improperly qualified for a mortgage?

I have an underwater mortgage on a variable interest rate and can’t refinance (owe 210 K , value is 120K). I do not qualify for any of the government assisted options and I am current on my payments. We bought the home on a 80/20 = 100% financed 6 years ago. We were students not sure how we qualified. Just looking for options as we don’t want to just walk away.

Asked on January 23, 2012 under Real Estate Law, Minnesota

Answers:

SJZ, Member, New York Bar / FreeAdvice Contributing Attorney

Answered 9 years ago | Contributor

IF the lender falsified your information (e.g. income, assets, debts) without your knowledge or consent to give you the loan, you may have a cause of action against them (though after 6 years, you may have exceed the time period to sue, called the statute of limitations).

However, if by "improperly qualified," you mean merely that it was probably a bad idea to qualify you, but all the information was accurate--or it was inaccurate, but you signed off on the inaccurate information--then you would have no cause of action. In the former case, the lender did nothing legally wrong (the law does not require banks--or anyone--to make good decisions; just to not deceive, defraud, etc.). In the latter case, your own wrong doing--signing off on incorrect information--would preclude you from recovery.


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