A buyer in Cambridge, Massachusetts submits a written offer to purchase a property for $875,000, contingent on obtaining financing at no more than 6.5% interest. The seller accepts the offer in writing. Three weeks later, the buyer cannot secure financing below 7.2% and seeks to withdraw from the contract. Under Massachusetts contract principles, which statement best describes the buyer's legal position?
Correct Answer
A) The buyer may withdraw without penalty because the financing contingency was not satisfied and the condition precedent failed
A financing contingency in a Massachusetts real estate contract is a condition precedent — the buyer's obligation to complete the purchase is conditioned on obtaining financing at the specified terms. When the condition (financing at no more than 6.5%) cannot be met, the buyer is entitled to withdraw from the contract without being in breach, and is typically entitled to a return of the earnest money deposit. The contract is voidable at the buyer's election when the contingency fails.
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Related Topics & Key Terms
Key Terms:
Related Concepts
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.
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.
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