|
BRIEF BYTES: Question and Answer
Forum
The purpose is to answer frequently
asked or unusual questions. Topics will range from real estate,
business, litigation and trusts and estates. Your feedback
is appreciated. Direct your comments to Cherisse Roy at croy@scott-harris.com
FINANCING CONTINGENCY - A TRAP FOR THE UNWARY
By J. Richard Harris, Esq.
 Many
using the form of contract for sale and purchase which is
jointly prepared and approved by the Florida Association of
REALTORS and the Florida Bar (the "FAR/Bar contract")
do not fully understand the provisions of the financing contingency
clause which is paragraph IV of the FAR/Bar contract. When
this provision is used, it makes the Buyer's obligations contingent
upon receiving the financing described within the time periods
established by the completion of the blank spaces. However,
this provision also contains the following language:
If
Buyer fails to obtain a commitment or fails to waive Buyer's
rights under this subparagraph within the time for obtaining
a commitment or, after diligent effort, fails to meet the
terms and conditions of the commitment by the closing date,
then either party thereafter, by written notice to the other,
may cancel this Contract and Buyer shall be refunded the
deposit(s);
Therefore,
if a commitment is not received within the required time period,
or if the commitment that is received within the required
time period does not meet the terms specified in the contingency
clause, the Buyer and Seller have the following rights:
1. The Buyer may waive the contingency clause; but, it
seems clear that the waiver should be made within the time
for obtaining the commitment established in the contingency
clause. If the Buyer waives, the transaction is treated
as a cash transaction.
2. If the Buyer does not receive the commitment within
the required time, or does not receive a commitment meeting
the required terms, and the Buyer does not waive the contingency,
either the Buyer or the Seller may cancel the contract with
written notice to the other party and the Buyer will receive
a refund of the deposit. There is no time period specified
within which either party may cancel the contract so that
either party can cancel up to the moment of closing.
In
recent times there have been a number of buyers, sellers and
REALTORS surprised because contracts have been cancelled by
either the Buyer or the Seller long after the date established
for the receipt of the financing commitment. Many have assumed
that if the contract is not terminated by the Buyer prior
to the date established for receipt of the commitment, that
the contract is firm and its terms must be met. But the language
set forth above clearly allows either the Buyer or Seller
to terminate. The clause is designed to protect Buyer and
Seller and is a good clause. But its terms should be understood
by all who use it.
If
no commitment is issued as required by the clause but the
Buyer is comfortable that the commitment for financing will
be received and that it will be acceptable, the Buyer should
waive the contingency clause. If there is no waiver and the
Seller should evaluate the Seller's position. If it the Seller
can receive some indication that acceptable financing will
be available to the Buyer, the Seller may request a waiver
from the Buyer and give up the right to cancel the contract.
If the Seller receives no satisfactory indication that acceptable
financing will be issued and no waiver, then the Seller should
consider cancellation. But, all should understand that the
clause is structured so that the date for receiving the financing
is a date which triggers rights. On this date the rights of
the parties should be firmed. If the commitment is issued
and meets the requirements of the clause, then the contract
is firm. If the commitment is not issued, then the parties
should take some action to either cancel or create a firm
contract. If the commitment is issued, but contains terms
different from the terms required by the clause, it is the
same as if the commitment had not been timely issued and the
parties should take some action to either cancel or create
a firm contract.
To Contact Us, call (561)
624-3900. Or fax
(561) 624-3533. To correspond online, please fill
out our contact form with your comments.
|
