Legal Question in Real Estate Law in California

Re: Are lenders liable when lending on sub-standard housing?

Haven't heard of this one exactly, but there isn't much new in the world of lending commitments and their breach.....so it's probably been tried somewhere.

Your starting point would be to go through the fine print in the loan-commitment agreement. You will probably find something that excuses the lender from honoring its commitment if the property to be acquired and to serve as collateral fails to conform to all applicable codes. This would be the lender's refuge, if sued.

Of course, lender make loans on defective property all the time. Some are more picky than others, but how do you suppose all those substandard properties get sold and resold? Someone makes loans on them!

Your lender may either be (1) genuinely averse to lending on a property with the particular kind (or number) of defects this one has, or (2) some other aspect of the deal has spooked them...perhaps they decided your credit isn't as good as they thought in the first place.

Lender liability generally arises only in the event of a foreclosure.

After reading the fine print, have some heart-to-heart discussions or negotiations with the lender, the escrow holder, and your real estate agent or broker. If you don't get satisfactory answers and are still irritated, or you smell a rat, see a real-estate attorney in your county.