Maria signs a purchase and sale agreement to buy a home in Worcester, Massachusetts. The agreement includes a mortgage contingency requiring her to obtain a written mortgage commitment by a specific date. Before that date arrives, Maria decides she simply no longer wants the property and invokes the mortgage contingency to cancel the contract, even though she could have obtained financing. Under Massachusetts law, what is the most likely outcome?
Correct Answer
D) Maria may cancel the contract but will forfeit her deposit because she acted in bad faith by not genuinely attempting to obtain financing
Massachusetts courts and real estate practice recognize that a mortgage contingency requires the buyer to act in good faith in seeking financing. A buyer who could have obtained a mortgage but invokes the contingency as a pretext to escape the contract has acted in bad faith. In such cases, the seller may be entitled to retain the deposit as liquidated damages. Simply invoking a contingency without genuinely attempting to satisfy it does not entitle the buyer to a full deposit refund.
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Related Topics & Key Terms
Key Terms:
Related Concepts
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.
Offer and acceptance is the process by which one party proposes specific terms for a contract and the other party agrees to those exact terms, creating mutual assent. This mutual agreement, also called a meeting of the minds, is an essential element of every valid contract.
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