A buyer and seller have signed a purchase agreement for a home in Coeur d'Alene, Idaho. The agreement contains a financing contingency stating that the buyer must obtain loan approval within 21 days or the contract is voidable by the buyer. On day 19, the buyer's lender denies the loan application. The buyer notifies the seller in writing on day 20. Which of the following is the most accurate outcome?
Correct Answer
B) The buyer may void the contract and is entitled to a refund of the earnest money deposit
A financing contingency is a condition precedent that protects the buyer. When the lender denies the loan and the buyer properly exercises the contingency by providing written notice within the specified period (day 20, before the 21-day deadline), the buyer has the right to void the contract and recover the earnest money deposit. The contingency was properly invoked.
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Related Topics & Key Terms
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Related Concepts
An inspection contingency gives the buyer the right to have the property professionally inspected within a specified time frame and to negotiate repairs or cancel the contract based on the findings.
Liquidated damages are a predetermined amount of money specified in the contract that the non-breaching party is entitled to receive if the other party breaches. In real estate, the earnest money deposit typically serves as liquidated damages.
Novation is the substitution of a new contract for an existing one, or the replacement of one party with a new party, with the consent of all parties involved. The original party is completely released from all obligations.
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