A buyer in Missoula, Montana signs a purchase agreement that includes a financing contingency. The contingency states the contract is void if the buyer cannot obtain a 30-year fixed-rate mortgage at 7% or below within 21 days. On day 18, the buyer is only approved at 7.5%. The buyer notifies the seller in writing. Which of the following best describes the status of the contract?
Correct Answer
D) The contract is void and the buyer is entitled to a refund of earnest money
The financing contingency was not satisfied because the buyer could not obtain a loan at 7% or below within the specified timeframe. Under Montana contract law, when a contingency fails and the buyer properly notifies the seller, the contract becomes void and the earnest money must be returned to the buyer. The buyer has fulfilled the notice requirement by notifying the seller in writing on day 18.
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Related Topics & Key Terms
Key Terms:
Related Concepts
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.
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.
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