Buyers Denied Loan, But Still Lose Deposit – A Reprint

The following is a reprint of James Haroutunian’s column that appeared in the Lowell Sun on February 11, 2012

A fellow real-estate lawyer who write the massrealestateblog.com brings attention to a recent appeals-court case that cost a couple their $31,000 deposit.  This case highlights the importance of proper contingency language in purchase-and-sale contracts.

These unfortunate buyers started off like everyone else.  Armed with a pre-approval letter, the buyers’ P&S contract contained a standard mortgage contingency.  It offered a refund of the deposit if the buyers were unable to get a mortgage loan.  A deadline was set and the buyers worked diligently with their lender to get a loan commitment.

These buyers were unique because they did not intend to sell their current home – essentially buying a second home.  When the lender analyzed the buyers debt-to-income ratios, it was determined they could not afford to carry both mortgage payments.

As a result, the lender required the buyers to “list their home for sale.”  When the buyers refused, the lender denied the loan.  Timely notice of the denial was provided, but the sellers refused to release the deposit.  The court determined the buyer’s refusal to list their current home for sale was unreasonable, and in violation of the “prevailing terms and conditions” portion of the mortgage-contingency clause.

Here the court found the lender’s condition reasonable, and the buyers’ refusal to list their home for sale unreasonable.  Thus the buyers LOST their $31,000 deposit.

Sadly, if the issue were addressed upfront, simple language could have been added.  Stating that financing would not be conditional on the buyers’ listing or selling their current home may have lowered the “prevailing conditions” standard enough to save the buyers’ deposit

Attorney James Haroutunian practices real-estate law, estate planning and probate at 630 Boston Road, Billerica.  He invites questions at james@hlawoffice.com or by phone at 978-671-0711.  His blog is found at http://www.hlawoffice.com

 

One response to this post.

  1. Its like you read my thoughts! You seem to grasp a lot about this, such as you wrote the e book in it or something. I think that you just can do with a few p.c. to force the message house a little bit, however other than that, that is excellent blog. A great read. I’ll certainly be back.

    Reply

Leave a Reply

Please log in using one of these methods to post your comment:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: