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

UPDATED: Oct 1, 2022

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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


SJZ, Member, New York Bar / FreeAdvice Contributing Attorney

Answered 5 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.

IMPORTANT NOTICE: The Answer(s) provided above are for general information only. The attorney providing the answer was not serving as the attorney for the person submitting the question or in any attorney-client relationship with such person. Laws may vary from state to state, and sometimes change. Tiny variations in the facts, or a fact not set forth in a question, often can change a legal outcome or an attorney's conclusion. Although has verified the attorney was admitted to practice law in at least one jurisdiction, he or she may not be authorized to practice law in the jurisdiction referred to in the question, nor is he or she necessarily experienced in the area of the law involved. Unlike the information in the Answer(s) above, upon which you should NOT rely, for personal advice you can rely upon we suggest you retain an attorney to represent you.

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