A Washington buyer's purchase and sale agreement contains a financing contingency specifying a conventional loan. After the contingency period expires, the buyer discovers she cannot qualify for a conventional loan but could qualify for an FHA loan. She requests the seller agree to an amendment changing the loan type to FHA. The seller refuses. The buyer then fails to close. Which of the following is the most accurate statement about the earnest money?
Correct Answer
C) The seller is entitled to the earnest money because the financing contingency expired and the buyer failed to perform
Once the financing contingency period expires without the buyer exercising the contingency, the buyer is obligated to close or be in breach of contract. The buyer's inability to qualify for the originally specified conventional loan after the contingency expired is not a basis for recovering earnest money. The seller's refusal to amend the contract is not a breach — sellers are under no obligation to agree to contract modifications. Because the buyer failed to perform after the contingency was waived, the seller is entitled to retain the earnest money as liquidated damages.
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Related Topics & Key Terms
Key Terms:
Related Concepts
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.
A bilateral contract is an agreement in which both parties exchange promises and are both obligated to perform, while a unilateral contract is one in which only one party makes a promise and the other party is not obligated to act.
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