A Virginia buyer signed a purchase contract with a financing contingency. The buyer applied for a mortgage in good faith but was denied due to a low credit score. The buyer now wants to withdraw from the contract. Under Virginia law, what is the most likely outcome regarding the earnest money deposit?
Correct Answer
B) The buyer is entitled to a refund of the earnest money because the financing contingency was not satisfied.
A financing contingency is a standard protective clause in Virginia purchase contracts that makes the buyer's obligation to purchase conditional upon obtaining approved financing. When the buyer applies in good faith but is denied, the contingency is not satisfied, and the buyer has the contractual right to withdraw without penalty. The earnest money deposit must be returned to the buyer because the condition precedent to the buyer's performance — obtaining financing — was not met.
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Related Topics & Key Terms
Key Terms:
Related Concepts
A time is of the essence clause in a contract means that all deadlines and dates specified in the agreement are strictly enforceable, and failure to meet them constitutes a material breach.
An appraisal contingency allows the buyer to cancel or renegotiate the contract if the property's appraised value comes in lower than the agreed-upon purchase price. This contingency protects buyers from overpaying.
An assignment of contract transfers one party's rights and obligations under a contract to a third party called the assignee. The original party, known as the assignor, transfers their contractual position to someone who was not originally part of the agreement.
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