A purchase agreement for a home in Lansing includes a contingency stating the sale is subject to the buyer obtaining financing within 21 days. On day 19, the buyer's lender denies the loan application. The buyer notifies the seller in writing and requests return of the $3,000 earnest money. The seller refuses, claiming the buyer did not make a good-faith effort to obtain financing. Under Michigan contract law, which statement is most accurate?
Correct Answer
B) The buyer is entitled to return of the earnest money if the financing contingency was properly exercised in good faith and within the specified timeframe
Under Michigan contract law, a properly drafted financing contingency protects the buyer's earnest money if financing is denied and the buyer provides timely written notice within the contingency period. If the buyer exercised the contingency in good faith and within the 21-day period, the earnest money must be returned. The seller's unilateral claim of bad faith does not entitle them to retain the deposit without evidence.
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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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