A buyer and seller execute a purchase and sale agreement for a residential property in Fairbanks. The agreement includes a financing contingency stating that the buyer must obtain mortgage approval within 21 days. On day 19, the buyer's lender issues a written denial. The buyer immediately notifies the seller in writing. Under Alaska contract principles, what is the most likely outcome?
Correct Answer
A) The contract is terminated and the buyer is entitled to a refund of the earnest money
When a purchase and sale agreement contains a financing contingency and the buyer is unable to obtain financing within the specified period, the contingency allows the buyer to terminate the contract without penalty. Because the buyer provided written notice of the denial within the 21-day window, the contingency was properly invoked. The buyer is entitled to a full refund of the earnest money deposit, and neither party has further obligations under the contract.
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Related Topics & Key Terms
Key Terms:
Related Concepts
Consideration is something of value exchanged between parties to a contract, making the agreement legally binding. It can be money, a promise to act, a promise to refrain from acting, or anything else of value.
Contingencies are conditions written into a real estate contract that must be met before the transaction can close. If a contingency is not satisfied, the buyer can typically cancel the contract without penalty.
Contract termination occurs when a contract is ended or discharged, releasing both parties from their obligations. A contract can be terminated through performance, mutual agreement, operation of law, or breach.
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