Selling a home—especially when preparing to move out of state—can be extremely stressful and requires trust and coordination among multiple parties
and institutions. Before accepting an offer and signing a purchase and sale agreement, sellers often require a prospective buyer to provide a mortgage pre-approval letter from a reputable lender or bank. But what liability, if any, does a lender or bank have to a seller for representations made in a mortgage pre-approval letter? The Business Litigation Session of the Suffolk Superior Court recently decided that a mortgage lender may be liable to a seller for allegedly misrepresenting in its mortgage pre-approval letter that it reviewed the prospective buyer’s credit profile and verified his income and assets. The case name is: Bokhari v. North Easton Savings Bank, Suffolk Superior Court, Case No. 2484CV01291.
Plaintiffs in the case listed their Massachusetts home for sale with the intention of moving to a new home in West Virginia. Plaintiffs received from a prospective buyer an offer to purchase the property for $2.05 million but plaintiffs required a pre-approval letter for a $1.64 million mortgage or eighty percent of the proposed purchase price before moving forward with the sale transaction.
The prospective buyer provided a pre-approval letter from the defendant bank, which stated that the defendant bank reviewed the prospective buyer’s credit profile and verified his income and assets. Plaintiffs, allegedly relying upon the mortgage pre-approval letter, accepted the offer and entered into a purchase and sale agreement with the prospective buyer. Thereafter, plaintiffs took the property off the market.
Eleven days later, the defendant bank rejected the prospective purchaser’s mortgage application, causing the sale to be cancelled. Plaintiffs were then unable to sell the property, claiming that the cancelled sale, coupled with years long litigation against the prospective buyer, created a perception that there was something wrong with the property and ruined its marketability. Plaintiffs also claimed that the collapsed sale prevented them from investing the sale proceeds and ultimately forced them to sell their home in West Virginia.
Plaintiffs sued the defendant bank for fraud, negligent misrepresentation, and violation of the Massachusetts Consumer Protection Act, G.L. c. 93A (“Chapter 93A”). Plaintiffs allegedly learned during the litigation that the defendant bank issued the mortgage pre-approval letter without reviewing the prospective buyer’s credit profile or verifying his income and assets.
The bank defended against the suit by arguing that the plaintiffs’ alleged injuries were not a reasonably foreseeable risk arising from a mortgage pre-approval letter. The Court disagreed, concluding that a reasonable jury could find that the plaintiffs, as sellers, were among those that the defendant bank had reason to expect would rely on its statements. The Court concluded that the plaintiffs’ claims both flowed from the defendant bank’s alleged fraud and were a reasonably foreseeable risk of the bank’s alleged false representation. The Court also rejected the defendant bank’s argument that it was shielded from liability under Chapter 93A because it had no business relationship with the plaintiffs. The decision is noteworthy and should serve as a warning to the lending industry in terms of the representations lenders make during the mortgage pre-approval process.
