Real Estate Financing Contingency Lawyers

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 What is Real Estate and Property Law?

Real estate and property laws are a body of laws that govern a wide variety of topics related to residential or real estate property, including:

  • Buying;
  • Selling;
  • Using; and
  • Leasing.

There are numerous disputes related to real estate and property laws that may arise, such as:

Real estate and property laws also govern the financial aspects of real property, including:

In addition, another area of law, wills, trust, and estates law, may fall under real estate and property law. This area of law, however, may also be considered a subcategory of estate law.

What is a Real Estate Contingency?

Real estate contingencies are conditions that are included in the real estate contract. Contingency clauses define the actions or conditions which must be taken or met in order for the real estate purchase agreement to become legally binding.

These conditions must be fulfilled by the parties to which they apply in order for the final steps of closing to take place. In many cases, if a contingency appears in the real estate purchase agreement or in the listing for a property, it usually means that there is an accepted offer on that property.

If the contingencies specified in the contract are not fulfilled within the specific time, a buyer or seller can, in many cases, walk away from the real estate deal. For example, if a buyer is unable to secure a mortgage for the property, the contract may be broken without any penalties imposed upon the buyer or the seller.

In the majority of real estate contracts, there is a time period between the signing of the contract and the actual closing of the sale, known as escrow. In many cases, contingencies must be met during the escrow period of the real estate transaction.

If the contingencies are not met by the closing date, the buyer or the seller has the right to cancel the purchase contract without penalty. Contingencies can benefit either party to the transaction, depending on the circumstances.

What Are Financing Contingencies?

Financing contingencies are requirements that a buyer secure a suitable amount of financing before a real estate deal can be completed. In the majority of cases, this will be in the form of a loan, typically a mortgage.

This type of contingency can be reassuring for a seller because, in some cases, loans may fall through at the last minute, right before the sale is complete. This would put the seller at a disadvantage and prevent them from selling their property in a timely manner.

Therefore, financing contingencies help ensure that buyers are able to afford their initial payments and that they will continue to be financially responsible.

What Are Some Common Examples of Real Estate Contingencies?

It is common for several different types of real estate contingencies to appear within the same real estate purchase agreement. Common examples of contingencies include:

  • Financing for mortgage approval;
  • An inspector’s report or appraisal; and
  • Renovation and improvements.

In general, a real estate sales contract is contingent upon a buyer securing financing. This often includes a mortgage loan which would be used to purchase the property. Typically, agreements consist of agreeing to purchase the property on the condition that the buyer is able to obtain a mortgage loan of at least 75% of the total purchase price.

The majority of real estate contracts specify that a buyer has the right to have a building inspector evaluate the property for:

  • Any potential defects;
  • Zoning issues; or
  • Other problems.

In terms of foreclosure sales, a real estate deal may be contingent upon a buyer accepting a property as is. In a real estate sale, the sale may be contingent upon an appraisal, which ensures that the property is worth its selling price.

If an appraisal comes back with a value which is lower than the selling price, there will typically be further negotiations in order to determine if the seller will lower the price. A real estate purchase agreement may be voided if, in these types of cases, the seller will not lower the price.

A common type of contingency is that one of the parties determines that the property can be renovated to their satisfaction. These contingencies are more common in commercial real estate transactions than in residential ones.

Other common examples of real estate contingencies may include:

  • Insurance approval, because a buyer would not want to close on a property if they were unable to get homeowner’s insurance for any reason;
  • The closing date, which is generally used by the seller to ensure that the seller can back out of the purchase if the buyer is unable fund the deal by that date;
  • Sale of previous property, which means that the purchase of a new home is contingent upon the closing on a sale of another home; and
  • A satisfactory walkthrough, which is requested by the buyer prior to closing.

The law allows both buyers and sellers to propose nearly any type of contingency during the negotiation of a real estate purchase agreement. This does not mean, however, that the other party will actually accept the proposed contingency.

Contingencies are very common in real estate transactions. However, some contingencies that are proposed by a party may cause issues which hinder the selling process.

Are There Any Alternatives to Financing Contingencies?

In previous times, financing contingencies were not used in some cases. Instead, a buyer may have provided a pre-qualification or a pre-approval document from their lender, which showed that they would qualify for a long.

In some situations, this is still a suitable practice. However, as previously discussed, the danger is present that the buyer may not be approved at the last minute right before the sale is finalized.

One alternative to a contingency is for a seller to accept only all cash offers, which would allow them to forgo a financing contingency. However, this option is not always realistic as many buyers do not have the cash on hand for these types of transactions.

Because of this, financing contingencies have become more popular in real estate sales contracts.

What if a Financing Contingency is Not Fulfilled?

Depending upon the circumstances, if a party fails to be a condition of a financing contingency, it may cause the entire sales transaction to fall through. In certain cases, it may be considered a breach of the real estate contract if the terms were agreed to in the contract.

In this type of case, the non-breaching party may receive a damages award. This may occur, for example, if the buyer’s failure to secure financing caused the seller to lose profit in some way.

In other situations, a failed contingency may result in a simple re-negotiation of sales terms if the parties still want to work with one another. This will depend upon the relationship between the parties as well as the facts of the case.

Do I Need a Lawyer for Help with Real Estate Financing Contingencies?

Yes, it is essential to have the assistance of a mortgage lawyer for any issues, questions, or concerns you may have regarding real estate financing contingencies. A financing contingency can be complex and may affect the outcome of a real estate transaction.

Your lawyer can assist you with negotiating the terms of a financing contingency as well as review your sales contract to ensure your rights are protected. If any disputes arise related to the sales contract or transaction, your lawyer can assist you with filing and lawsuit and represent you in court.

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