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What happens when the Financing Contingency expires?

I have a recent situation where a seller is FSBO entered into a Purchase & Sale Agreement.

I noted the absence of a Pre-approval letter with the offer accepted, which is not required. It is however, always suggested you obtain a Pre-approval letter before removing your property from the market as this confirms a buyer has applied for a mortgage. It also provides you with their lender's information for you to follow up on the Letter of Loan Commitment due as your agreement states in the Financing Contingency.

Mutual Acceptance of the Purchase and Sale Agreement was on June 19, 2007. The Purchase and Sale Agreement included a Financing Contingency for 30 days. The 30 day Contingency expired on July 19, 2007. The Buyer's Notice of Termination due to Unavailable Financing was provided July 23, 2007 by email, 4 days after the Contingency expired.

Earnest Money of $10,000 is being held in trust as deposit Escrow.

Now what?

HOPE Lending LLC - Financing Contingency

Posted by Melissa Olson ~ HOPE Lending LLC on 07/31/2007 10:56 PM

Comments (14)

melissa olson, hope lending, mortgage consulting, financing contingency

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14 Comments on What happens when the Financing Contingency expires?

JUL

2007

Very difficult to say without reading the contract. It would be a slam dunk for the buyer if the notice was given prior to the expiration of the contingency. With cancelation coming after the 30 day window, however, it will boil down to how the legal language regards silence upon the end of the 30 days. In some municipalities, the earnest money may go immediately hard at day 30. In others, the buyer might need to sign an addendum stating that financing is in place and he/she is prepared to move forward before the money goes hard. Still other locales might find the buyer to be in potential breach of contract, but not fully in breach until the seller supplies written notice of said breach. You see where I'm going with this. Too many variables to offer much from the sidelines. I've got to say it. They should have sought the representation of an agent!

The seller can terminate the agreement, if after 30 days the buyer can not produce a letter of loan commitment, or waive the financing contingency. The earnest money will go to the buyer, unless he waives the financing contingency.

Sandy

Paul - yes, a great example of a FSBO gone bad. Thanks for sharing your comments.

Sandy - Why would the earnest money go to the buyer if the contingency expired and they didn't waive the contingency? What's the point in providing it if it gives the Seller no assurance?

The contingency was a part of the contract but did the contract stipulate waht either party could do if a contingency was not met. If the seller's feel harmed then the buyer will need to hire legal counsel to try and get their earnest money back. It sounds as if the sller and the buyer would have been better served by using a realtor. IMNSHO

AUG

2007

I would think the buyers would NOT get the money, however they will have to get lawyers to fight it out. If they had a buyers agent that agent should have been keeping track of the dates and should have asked for an extension until the bank figured out they could not get financing.

Randy - thanks for commenting. I appreciate your "not so humble opinion". I provided a good attorney contact. Let's hope they use a Realtor now.

Melissa

I'm glad to read you have provided a good attorney. Always excellent advice. Without reading the entire contract it is very difficult to provide advice except in general terms, plus practices vary from state to state.

Here an email notification of buyer's inability to obtain mortgage is not sufficient unless provided by the lender and within the mortgage contingency dates. The buyer can still terminate the contract but they are in danger of losing their deposit monies. This is where good legal advice needs to come into play.

Sandra

Sandra - Thanks for commenting. I will post what happens after this when I know.

Suzanne - Thank you for sharing your opinion. It does seem simple, but nothing ever is if people disagree.

Melissa,

I haven't seen the paperwork, but NWMLS form 22 A (Financing Addendum) stipulates that if the buyer does not waive the financing contingency after 30 days (or amount of days agreed upon), the seller can give notice to terminate the contract. The buyer then has three days to either waive the financing contingency, or the agreement is terminated. The earnest money in that case is to be released back to the buyer.

Sandy

AUG

2007

Sandy - I guess you are saying that because it wasn't waived, and no notice was given within the 30 days, the buyer still had 3 days to waive but because they didn't the agreement was terminated? By agreement do you mean the P & S Agmt?

Melissa,

Unless the buyer waives the contingency he/she can terminate the agreement (P+S) based on not getting a loan at anytime and get his earnest money back. The Financing Contingency means that after 30 days the seller can require a waiver, which, if the buyer does not furnish it within 3 days (after request), allows the seller to terminate the agreement (P+S). Even if the seller terminates the agreement based on the buyer not waiving the contingency, the buyer gets the earnest money back.

I'm not sure what form your buyer has used, but that's how it stipulates in the NWMLS Form 22 A.

Sandy

AUG

2007

Sandy - yes, they are using the form you've sited. Thank you for clarifying the meaning. This makes sense.

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