Patricia signs a purchase agreement to buy a home in Princeton, New Jersey. The contract includes a mortgage contingency clause stating that if Patricia cannot obtain a mortgage commitment at a specified interest rate within 30 days, she may void the contract and recover her deposit. On day 28, Patricia is approved for a mortgage but at a rate slightly higher than specified. She notifies the seller she is voiding the contract. Which of the following is most accurate under New Jersey law?
Correct Answer
A) Patricia may void the contract and recover her deposit because she did not receive the exact rate specified
Under New Jersey contract law, mortgage contingency clauses are construed according to their express terms. If the contingency specifies a particular interest rate and the buyer cannot obtain approval at that rate, the condition has not been satisfied and the buyer may exercise the contingency to void the contract and recover the deposit. The contingency is drafted to protect the buyer from being forced into a loan on terms materially different from those anticipated.
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Related Topics & Key Terms
Key Terms:
Related Concepts
Earnest money is a deposit made by the buyer at the time of the offer or shortly after to demonstrate good faith and serious intent to purchase the property. It is also called a good faith deposit.
Equitable title is the buyer's interest in a property after a purchase contract is signed but before closing, giving the buyer the right to acquire legal title in the future. The seller retains legal title until the deed is delivered at closing.
A financing contingency makes the purchase contract conditional upon the buyer obtaining mortgage approval within a specified time period. If the buyer cannot secure financing, they can cancel the contract and receive their earnest money back.
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