Marcus, a broker in Maine, represents the buyer in a transaction. The purchase and sale agreement includes a financing contingency stating that if the buyer cannot obtain a mortgage commitment at 6.5% or lower within 21 days, the buyer may terminate the contract. On day 19, the buyer receives a commitment at 7.0% and notifies Marcus. Marcus advises the buyer to terminate the contract. Which of the following best describes the legal outcome?
Correct Answer
D) The buyer may terminate and recover the earnest money because the commitment rate exceeds the contingency threshold
The financing contingency in this purchase and sale agreement specifically requires a mortgage commitment at 6.5% or lower. Since the buyer received a commitment at 7.0%, the specific condition of the contingency has not been met. Under Maine contract law, when a contingency condition is not satisfied, the buyer may properly exercise the contingency to terminate the contract and recover the earnest money deposit. The rate threshold is a material term of the contingency clause.
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Related Topics & Key Terms
Key Terms:
Related Concepts
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.
Contingencies are conditions written into a real estate contract that must be met before the transaction can close. If a contingency is not satisfied, the buyer can typically cancel the contract without penalty.
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