I had a recent discussion with another broker about financing contingencies for a home for sale in Bethesda. It makes me realize how little understanding there is about this vital part of the contract. She was clearing the contingency upon the 30 day end. No, I screamed!
Here is the language:
C. FINANCING (Must Select Option 1 or 2) Not to be used with Seller Financing
Option (1) This Contract is contingent on Purchaser obtaining approval for loan(s) to purchase the Property . This Contract is contingent until 9 p.m. ____ Days after Date of Ratification (“Financing Deadline”) upon Purchaser Delivering Notice to Seller on the Regional Form #100 removing this Financing Contingency. Such shall or shall not be accompanied by a letter from the lender (“Lender’s Letter). Such Lender’s Letter shall include the following statements or statements substantially similar thereto:
1) Purchaser is approved for the Specified Financing,
2) a ratified Contract has been received,
3) a written application for the financing has been made,
4) income, asset, and liability documentation on Purchaser have been received,
5) Purchaser’s credit has been reviewed, and
6) the application has been reviewed and meets underwriter and investor guidelines.
If Purchaser fails to Deliver Regional Form #100 and Lender’s Letter (if required) by the Financing Deadline, this contingency will continue, unless Seller at Seller’s option gives Notice to Purchaser that this Contract will become void. If Seller Delivers such Notice this Contract will become void at 9 p.m. on the third day following Delivery of Seller’s Notice unless prior to that date and time:
a) Purchaser Delivers to Seller Regional Form #100 and Lender’s Letter (if required); or
b) Purchaser Delivers to Seller Regional Form #100 and provides Seller with evidence of sufficient funds available to complete Settlement without obtaining financing. Upon Delivery to Seller of either (a) or (b) above, this Contract will no longer be contingent on Purchaser being approved for the Specified Financing and this Contract will remain in full force and effect. Prior to satisfaction or removal of the Financing Contingency, if Purchaser receives a written rejection for the Specified Financing and Delivers a copy of the written rejection to Seller, this Contract will become void.
Most folks are going to finance the purchase of homes for sale in Bethesda. Few of us have a million bucks laying around so we depend upon the bank! As such we are likely to have a financing contingency in place in our offers to purchase. The standard financing contingency allows for a certain number of days for the buyer to get financing firmed up and deliver a letter from the bank that says they are good to go.
But let's look at this in terms of who we represent:
My attorneys have advised me never to clear this contingency and to simply let it run until settlement. As a buyer's agent it is my responsibility to protect them to the best of my ability. Stuff happens on the way to settlement and a buyer needs the protection a contingency affords them. If there were some last minute hitch and financing was denied then the buyer could get his/her deposit back and be free and clear. With a cleared contingency the buyer is in default and is at risk to lose his/her deposit money.
There is no legitimate reason to clear the financing contingency unless forced to by the seller to stay in the deal. It is in the buyer's best interest to maintain the protection afforded by the contract language.
In general the legal advice I've followed is to let this contingency run until settlement. Never voluntarily clear it because we don't know what might happen.
There is a provision for the seller to deliver a Form 100 letter that essentially demands that the buyer clear the contingency or else they'll void the contract. Powerful for a seller who is unsure of the buyer's ability to follow through on a purchase and also a way to force a buyer out of a contract if they are unable to clear that contingency in the 3 day time frame they are given to do so. But a seller who wants to keep a buyer in the contract should be very wary of delivering this notice in case the buyer is getting cold feet and simply uses this as an additional out.
In protecting the interests of the seller it would seem to be the right decision to get the contingency cleared. But doing so by delivering a notice that allows the buyer to fail to respond thereby voiding the contract would be contrary to the seller's goal of selling his home. In the case of a shaky buyer who is not responding to requests from his lender, who has not displayed the good faith that he can get to the settlement table, it may be best to force him to put up or shut up sooner rather than later so you can get the house back on the market quickly.
Or let's say you get a better offer and want to be able to take it. You could try to force out the first offer with the financing contingency. And if they can't or are not willing to clear it, you'd have a route to take the new offer. Assessing the situation and making recommendations that are pertinent to only that situation requires enough knowledge about the regional contract and its implications to give good advice.
I had to deal with a FSBO recently who knew enough to be dangerous but not enough to get out of his own way and he wanted to make sure he could deliver this form 100. Day 30 was going to be right at the end of underwriting, days before settlement. Geez. Do you or do you not want to sell your house? With exceptionally well qualified buyers who have jumped through all the hoops just check in with the lender and make sure they are progressing before you simply take your "right" to clear a contingency. Sure it's nice to take away the doubt but each transaction has a certain amount of risk you simply can't cure.
When buying or selling a home in Bethesda there is more to the transaction than the "deal". Understanding the implications of each decision is an important part of the buyer or seller's overall education. I don't expect you to learn it to the degree I understand the contract but we should have the discussion so you understand what could happen.
If you are looking to buy or sell a home here or in one of the other lovely surrounding Bethesda real estate communities, please start your search by calling me, a Bethesda Realtor. You can search for all homes for sale in Bethesda here or by clicking on the search button.