Chen and Maria signed a Maryland residential purchase contract for $600,000. The contract had no liquidated damages clause and included a financing contingency that expired on Day 21. On Day 20, Chen received a conditional mortgage commitment subject to appraisal. The home appraised at $570,000. Chen's lender refused to fund the full $600,000 loan. Chen notified Maria on Day 22 — one day after the contingency expired — that he could not obtain full financing and demanded return of his $20,000 deposit. Maria refused. Under Maryland law, what is the most likely outcome?
Correct Answer
D) Maria is entitled to retain the $20,000 deposit and may also pursue actual damages because Chen failed to timely exercise the financing contingency before it expired
This is a high-difficulty trap question. Chen's financing contingency expired on Day 21. His notice to Maria was given on Day 22 — one day after the contingency period ended. Under Maryland contract law, once the financing contingency expires without proper and timely exercise, the buyer loses the contractual right to terminate based on financing failure. Chen's failure to provide notice within the contingency period means his attempted termination was ineffective, constituting a breach of contract. Because there is NO liquidated damages clause, Maria is not limited to retaining the deposit — she may also pursue actual damages beyond the $20,000 deposit for any losses caused by Chen's breach, such as relisting costs, carrying costs, or a lower resale price.
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Related Topics & Key Terms
Key Terms:
Related Concepts
An option contract gives one party the exclusive right, but not the obligation, to purchase or lease a property at a specified price within a specified time period. The buyer pays option consideration to keep the option open.
A purchase agreement is a legally binding contract between a buyer and seller that outlines the terms and conditions for the sale of real property. It is also commonly called a sales contract, purchase and sale agreement, or earnest money agreement.
Specific performance is a court-ordered remedy that compels the breaching party to fulfill their obligations under the contract rather than simply paying monetary damages. It is an equitable remedy used when monetary damages would be inadequate.
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