A buyer in New Canaan, Connecticut is purchasing a $1.8 million single-family home. The purchase contract includes a mortgage contingency but no appraisal contingency. The property appraises at $1.65 million — $150,000 below the purchase price. The lender agrees to fund the loan based on the appraised value of $1.65 million, requiring the buyer to cover the $150,000 appraisal gap with additional cash. The buyer claims she can invoke the mortgage contingency to terminate the contract because the loan terms changed due to the low appraisal. The seller disputes this. Which analysis is most accurate under Connecticut contract law?
Correct Answer
D) The buyer cannot terminate under the mortgage contingency because the lender agreed to fund the loan, satisfying the financing condition; the buyer's issue is the appraisal gap, not a financing denial
This is a sophisticated trap question. The mortgage contingency protects the buyer if they cannot obtain financing — i.e., if the loan is denied. Here, the lender agreed to fund the loan, albeit at the appraised value of $1.65 million rather than the $1.8 million purchase price. The financing contingency is satisfied because the buyer can obtain a loan. The buyer's real problem is the $150,000 appraisal gap, which would have been addressed by a separate appraisal contingency. Because the buyer chose not to include an appraisal contingency, she has no contractual right to terminate based on the low appraisal. Attempting to use the mortgage contingency to cover an appraisal gap issue is a misapplication of the contingency's purpose and would likely be rejected under Connecticut contract law.
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Related Topics & Key Terms
Key Terms:
Related Concepts
A purchase agreement is a legally binding contract between a buyer and seller that outlines the terms and conditions for the sale of real property. It is also commonly called a sales contract, purchase and sale agreement, or earnest money agreement.
Specific performance is a court-ordered remedy that compels the breaching party to fulfill their obligations under the contract rather than simply paying monetary damages. It is an equitable remedy used when monetary damages would be inadequate.
The Statute of Frauds is a legal requirement that certain types of contracts must be in writing and signed to be enforceable. In real estate, all contracts for the sale of land or interests in land must be in writing.
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