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Just Because A Lender Says You Qualify For A Loan Does Not Mean They Are Saying You Can Afford It!

Mortgage & Lending Law by Simon Offord, Esq.

In the published portion of the recent decision by the California Court of Appeals (Perlas v. GMAC Mortgage), the Court held that merely because a lender determines that a borrower qualified for a loan does not suggest that the borrowers can afford the loan.

Plaintiff-borrowers alleged that at some point during the application process, someone inflated the borrowers’ income claimed on their loan application. Plaintiffs allege that as a result, GMAC knowingly made a loan that Plaintiffs could not afford.

Plaintiffs alleged GMAC’s actions were fraudulent in that Plaintiffs were entitled to rely on GMAC’s determination that they qualified for the loan to decide that they could afford the loan.

The Appellate Court rejected this argument, noting that Plaintiffs had provided no authority to support their proposition. The Court cited several cases holding that a loan is an arm’s length transaction and no fiduciary relationship exists between the borrower and lender.

Instead, the lender is pursuing its own interests when approving a loan, not the borrower’s. Therefore, the Court rejected Plaintiffs’ causes of action for fraudulent misrepresentation and fraudulent concealment.

This is not a surprising result, as it seems pretty obvious that the purpose of verifying income and approving a loan is for the lender’s protection. That being said, borrowers face the risk that, if their loan application is fraudulently altered, they may be lulled into believing that they can afford the loan.

Therefore, it is very important for borrowers to independently determine whether they can make loan payments, rather than simply relying on the fact that they qualified, or allegedly qualified, in deciding to take out a loan.

Simon Offord, Esq., is a California real estate attorney and associate with Brewer Offord & Pedersen LLP, in Palo Alto, California. The firm serves the legal needs of homeowners, real estate and mortgage brokers, agents, brokerages, title companies, developers, investors, and other real estate professionals and their clients.

Mr. Offord and his firm also represent clients in debt collection, creditor representation in bankruptcy proceedings, breach of contract matters, and other litigation and transactional work. The firm’s clients include homeowners, brokers and lenders, and other real estate professionals throughout Northern California.

You can contact Brewer Offord & Pedersen LLP at 350 Cambridge Avenue, Suite 200, Palo Alto, California 94306, phone: (650) 327-2900, or at

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