A buyer and seller sign a purchase agreement for a Cedar Rapids property. The agreement includes a financing contingency stating that if the buyer cannot obtain a mortgage commitment within 21 days, the buyer may void the contract. On day 19, the buyer's lender issues a written denial. The buyer notifies the seller in writing on day 20. What is the most likely outcome under Iowa contract principles?
Correct Answer
B) The buyer may rescind the contract and recover the earnest money because the contingency was properly invoked within the stated period
The financing contingency is a condition that, if not met, gives the buyer the right to void the contract and recover earnest money. The buyer received a written denial on day 19 and properly notified the seller in writing on day 20, within the 21-day window. The contingency was properly invoked, entitling the buyer to rescind and recover earnest money.
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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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