A buyer in Anne Arundel County submits a written offer that includes a financing contingency stating the offer is contingent upon the buyer obtaining a mortgage commitment within 21 days. The seller accepts the offer and both parties sign. On day 18, the buyer's lender denies the loan application. The buyer promptly notifies the seller in writing. What is the most likely outcome under Maryland contract law?
Correct Answer
B) The buyer may void the contract and recover the earnest money deposit based on the financing contingency
A financing contingency in a Maryland real estate contract protects the buyer's right to void the contract and recover the earnest money deposit if the buyer is unable to obtain financing within the specified period, provided the buyer has made good-faith efforts to secure the loan. Since the loan was denied on day 18 (within the 21-day window) and the buyer gave timely written notice, the contingency allows the buyer to exit the contract without penalty and receive a full refund of the earnest money.
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Related Topics & Key Terms
Key Terms:
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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