David is under contract to purchase a single-family home in Passaic County for $485,000. His mortgage contingency states he must obtain a written loan commitment for a 30-year fixed-rate mortgage at no more than 6.5% interest within 21 days of contract signing. On day 19, David's lender issues a commitment at 7.0% because his credit score dropped. David wants to void the contract and recover his $15,000 deposit. Which statement best describes David's position under New Jersey law?
Correct Answer
A) David may void the contract because the commitment does not meet the terms specified in the contingency, and he is entitled to a full deposit refund.
The mortgage contingency in New Jersey contracts typically specifies the loan amount, interest rate cap, and loan type. If the lender's commitment does not match the terms stated in the contingency — here, the rate of 7.0% exceeds the 6.5% cap — the contingency has not been satisfied. David is therefore entitled to void the contract and recover his full deposit. The contingency protects the buyer when financing cannot be obtained on the specified terms, regardless of the reason for the deviation.
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Related Topics & Key Terms
Key Terms:
Related Concepts
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.
A purchase agreement is a legally binding contract between a buyer and seller that outlines the terms and conditions for the sale of real property. It is also commonly called a sales contract, purchase and sale agreement, or earnest money agreement.
Specific performance is a court-ordered remedy that compels the breaching party to fulfill their obligations under the contract rather than simply paying monetary damages. It is an equitable remedy used when monetary damages would be inadequate.
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