Jennifer and Tom are under contract to purchase a home in Bowling Green, Kentucky. The purchase agreement contains 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 19, the buyers are denied financing at any rate below 8%. What is the legal status of the purchase agreement?
Correct Answer
A) The contract is voidable at the buyers' option because the financing contingency was not met
A financing contingency in a Kentucky purchase agreement creates a condition that makes the contract voidable at the option of the protected party (the buyers). When the buyers cannot obtain financing at the specified terms within the contingency period, they have the right to void the contract and recover their earnest money. The contract is not automatically void — it is voidable, meaning the buyers must exercise their right to cancel; if they do not, the contract may remain in effect.
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Related Topics & Key Terms
Key Terms:
Related Concepts
A bilateral contract is an agreement in which both parties exchange promises and are both obligated to perform, while a unilateral contract is one in which only one party makes a promise and the other party is not obligated to act.
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.
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