Preapproval Doesn't Guarantee Loan

Illinois Appellate Court Suburban 1 Inc. v. GHS Mortgage LLC, 2005

August 1, 2006

An Illinois appeals court has ruled that a lender’s rejection of buyers for a loan after preapproving them doesn’t constitute fraud. The buyers, Karen and Douglas Sullivan, made an offer on a home listed with a brokerage. The offer was contingent on the Sullivans’ obtaining financing. Two days before the sellers accepted the offer, the Sullivans had been preapproved by Windsor Mortgage. Nevertheless, the buyers weren’t able to obtain adequate financing, and the sellers terminated the contract.

The brokerage representing the sellers filed suit against the Sullivans and the mortgage company, alleging fraud and deceptive practices for representing the Sullivans as qualified to obtain necessary financing.

The trial court dismissed the suit. The appeals court upheld the dismissal because the mortgage company had made no representations to the brokerage that the buyers were qualified to obtain the necessary financing without selling their existing home. Because the statements about the Sullivans’ prequalification were made to the sellers instead of the brokerage, the court found that the brokerage couldn’t show that the statement about prequalification wasn’t a false statement made to a plaintiff in the suit, an essential element of any fraud allegation.