Jennifer and Tom are purchasing a home in Lawrence, Kansas. Their purchase agreement includes a financing contingency stating that the contract is contingent upon the buyers obtaining a 30-year conventional mortgage at no more than 7% interest within 21 days. On day 18, their lender informs them the best available rate is 7.25%. Jennifer and Tom notify the seller they are exercising the contingency and withdrawing from the contract. Which statement correctly describes the legal outcome?
Correct Answer
A) The buyers have properly exercised the contingency and are entitled to a full refund of their earnest money
The financing contingency in the purchase agreement specifically conditioned the contract on obtaining a loan at no more than 7% interest. Since the buyers were unable to obtain financing meeting that condition — the best available rate was 7.25% — the contingency was not satisfied. The buyers properly notified the seller within the 21-day period, exercising their right to withdraw. Under Kansas contract law, when a contingency is not satisfied and the buyer timely exercises it, the contract is void and the buyer is entitled to a full refund of earnest money.
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Related Topics & Key Terms
Key Terms:
Related Concepts
A breach of contract occurs when one party fails to perform their obligations under the contract without a legal excuse. The non-breaching party is entitled to legal remedies including damages, specific performance, or contract rescission.
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.
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