A Michigan purchase agreement for a Kalamazoo home included a contingency requiring the buyer to obtain mortgage financing within 21 days. The buyer applied for a loan but was denied due to a low credit score, and she notified the seller in writing within the contingency period. The seller claims the buyer is in breach and wants to keep the earnest money. Which statement best describes the legal outcome under Michigan contract law?
Correct Answer
D) The buyer is entitled to a refund of the earnest money because the financing contingency was not satisfied
Under Michigan contract law, a properly drafted financing contingency allows the buyer to terminate the purchase agreement and receive a full refund of the earnest money if the buyer is unable to obtain financing within the specified period. Because the buyer timely notified the seller of the loan denial within the 21-day contingency period, the contingency was not satisfied and the contract is voidable by the buyer. The buyer is entitled to the return of the earnest money, and the seller has no right to retain it.
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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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