Is it legal for a lender to approve your loan and send you copies of the loan but then decide on the last day of escrow not to give you the loan?

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Is it legal for a lender to approve your loan and send you copies of the loan but then decide on the last day of escrow not to give you the loan?

Asked on July 30, 2015 under Real Estate Law, California

Answers:

SJZ, Member, New York Bar / FreeAdvice Contributing Attorney

Answered 6 years ago | Contributor

It depends what you mean by "approve." If they notified you that you actually had the loan, then unless something changed or unless they reserved the right to change their mind later (e.g. there was something in the loan documents stating that the loan was not yet final), then no, they should not be able to do this. If they reneged on the loan after final approval, without it being due to some reservation of right or change in circumstances (though note: if there was some relevant change, like a reduction in your income, they could certanly then call off the loan), you may be able to sue them for any losses, damages, additional costs, etc. you incurred, such as under a theory of promissory estoppel (that you reasonably relied on their promise to make the loan) or possibly for breach of contract.

However, if they never told you that the loan was final, but rather merely said you were "approved" for a loan, that is not the same thing. Being approved for a loan merely means you meet the criteria for a loan and are "loan worthy", but it does not guaranty getting  the loan and the lender could decline to issue it. Only if you were told that you were absolutely getting the loan might you have a cause of action.


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