Is it legal for a mortgage company to back out of a loan that they approved

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Is it legal for a mortgage company to back out of a loan that they approved

All documents were turned in to the
company. Contract was signed along
with purchase agreement. Two weeks
later get a phone call from the
company saying they made a mistake
and cannot do the loan. Is that legal?

Asked on October 14, 2017 under Real Estate Law, Florida

Answers:

SJZ, Member, New York Bar / FreeAdvice Contributing Attorney

Answered 3 years ago | Contributor

A contract with whom was signed? If you had a signed agreement with the mortgage company--i.e. a signed mortgage--that they would provide the loan, then they must do so: a contract is enforceable against the parties to it.
But if you did not have a contract with the mortgage company--if, for example, the contract you refer to is with the home seller--then they can refuse now to provide a loan. A contract with another party (e.g. the seller) does not bind the mortgage company; and until and unless you had a signed contract with the lender, they were not obligated to provide a loan. So if you did not have a signed agreement with the lender, they could change their mind and refuse to provide a loan.


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