In the Colorado Contract to Buy and Sell Real Estate ("Colorado Contract" for short), there are two deadlines relating to obtaining a new loan to purchase the property: the Loan Application Deadline and the Loan Conditions Deadline. These deadlines benefit both sellers and buyers. On the seller side, having these deadlines assures the seller that the buyer must apply for a loan on a timeline which increases the chances that the loan will go through and the buyer will have money available in time for closing. On the buyer side, building these deadlines into the Colorado Contract ensures that if the buyer is not able to timely obtain a loan she can afford and likes the terms of, she is still able to walk away from the deal.
The Loan Application Deadline is really for the benefit of the seller. By this date, the buyer is required to have made a "verifiable application" for a loan. If the buyer hasn't applied for the loan by this date, the seller has a good indication that a) this buyer may not be all that serious, and b) if this deal is going to close, it might be delayed because of the buyer's failure to timely apply for a loan. The deadline doesn't mean that the buyer has to go with the loan that he has applied for by that deadline, but at least the seller knows that the buyer is required to be making good-faith efforts to obtain a loan by that point.
The second deadline, the Loan Conditions Deadline, is the big one. Under the Colorado Contract, the buyer has the right to decide under his "subjective discretion" whether the loan he has been approved for "is satisfactory . . . including its availability, payments, interest rate, terms, conditions and cost . . ." If the buyer is not happy with the loan he has been approved for, he can back out of the deal for this reason if the seller receives written notice to terminate the contract by the Loan Conditions Deadline. As soon as the seller receives notice, the contract terminates.
So what do these deadlines mean in reality? When a seller receives an offer, she should check the Loan Application Deadline and make sure that it is soon enough to allow plenty of time for the buyer's loan to go through. As for the Loan Conditions Deadline, if the buyer hasn't notified the seller in writing that he cannot find a satisfactory loan by this date, it simply means that, if the property doesn't close because the buyer can't get a loan, the buyer is at risk of losing his earnest money and/or is on the hook for other damages due to breach of contract.
These deadlines are particularly important to keep on top of in the current environment where money is not flowing as quickly or freely as it used to. Buyers can count on their agents to remind them of these deadlines, but it is ultimately the buyers' responsibility to meet these deadlines by being diligent in their loan application.
(In an effort to aid Colorado first-time homebuyers understand the Colorado Contract to Buy and Sell Real Estate, I'm writing a series of posts on the contingencies you can write into your offer. This one's the second. The first post is on Colorado Contract Inspection Contingencies.)
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