A buyer in California agrees to purchase a home and the contract includes a financing contingency. The buyer applies for a loan but is denied because of a low credit score. The buyer timely notifies the seller and cancels within the financing contingency period. The seller refuses to return the deposit, claiming the buyer should have known about the credit issue. Under the California RPA, who is entitled to the deposit?
Correct Answer
C) The buyer, because cancellation within the financing contingency period entitles the buyer to a full deposit refund
Under the standard California RPA, when a buyer timely cancels within the financing contingency period due to failure to obtain a loan, the buyer is entitled to a full refund of the earnest money deposit. The financing contingency protects the buyer from losing their deposit when financing falls through, regardless of the reason for the loan denial.
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Related Topics & Key Terms
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Related Concepts
A time is of the essence clause in a contract means that all deadlines and dates specified in the agreement are strictly enforceable, and failure to meet them constitutes a material breach.
An appraisal contingency allows the buyer to cancel or renegotiate the contract if the property's appraised value comes in lower than the agreed-upon purchase price. This contingency protects buyers from overpaying.
An assignment of contract transfers one party's rights and obligations under a contract to a third party called the assignee. The original party, known as the assignor, transfers their contractual position to someone who was not originally part of the agreement.
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