A purchase agreement in Watertown, South Dakota includes a financing contingency. The buyer, David, applies for a mortgage but is denied by the lender. David notifies the seller in writing within the contingency period. Under South Dakota contract law principles, what is the most likely outcome regarding the earnest money?
Correct Answer
C) The buyer is entitled to a refund of the earnest money because the financing contingency was not satisfied.
When a purchase agreement contains a valid financing contingency and the buyer is unable to obtain financing through no fault of their own, the failure of the contingency allows the buyer to withdraw from the contract and receive a full refund of the earnest money. The financing contingency is a condition precedent to the buyer's obligation to perform, and its failure releases both parties from the contract.
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Related Topics & Key Terms
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Related Concepts
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.
Contract termination occurs when a contract is ended or discharged, releasing both parties from their obligations. A contract can be terminated through performance, mutual agreement, operation of law, or breach.
A counteroffer is a response to an original offer that changes one or more terms of the offer, effectively rejecting the original offer and creating a new offer. The party who makes the counteroffer becomes the new offeror.
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