David, a Connecticut real estate salesperson, represented a seller in a transaction. The buyer submitted a signed offer, and the seller accepted in writing. Before closing, the buyer's financing fell through, and the buyer could not obtain a mortgage despite having a financing contingency in the contract. The seller is furious and wants to keep the $20,000 earnest money deposit. Under Connecticut law, which of the following is most accurate?
Correct Answer
A) The buyer is entitled to a full refund of the deposit because the financing contingency was not satisfied through no fault of the buyer
A financing contingency in a Connecticut purchase contract is a condition precedent to the buyer's obligation to close. If the buyer is unable to obtain financing through good-faith efforts and the contingency deadline passes without satisfaction, the condition has failed through no fault of the buyer. This allows the buyer to exercise the contingency, void the contract, and recover the full earnest money deposit. The seller cannot retain the deposit when the buyer's non-performance is excused by an express contractual contingency.
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Related Topics & Key Terms
Key Terms:
Related Concepts
Earnest money is a deposit made by the buyer at the time of the offer or shortly after to demonstrate good faith and serious intent to purchase the property. It is also called a good faith deposit.
Equitable title is the buyer's interest in a property after a purchase contract is signed but before closing, giving the buyer the right to acquire legal title in the future. The seller retains legal title until the deed is delivered at closing.
A financing contingency makes the purchase contract conditional upon the buyer obtaining mortgage approval within a specified time period. If the buyer cannot secure financing, they can cancel the contract and receive their earnest money back.
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