PROPERTY LAW: The Mortgage Contingency Clause

Travels through Property Law by Tom Brodersen, Esq.

Any number of things can go wrong when buying real estate, so you need several safety protections to keep you from being bound to go forward with a transaction that you should just walk away from.

The first is where you are depending on getting a mortgage, but, for whatever reason, your efforts fail.  While no one can force you to close when you don’t have the money, you can all too easily lose your earnest money deposit, which, in a Sellers’ market like today’s, tends to be large.

To make sure you have the right to walk away without losing your deposit should financing fail, it is important to do the paperwork right, and fulfill all of your duties as you go through the process.

First of all, make sure you clearly show on the contract that you are using a loan for part of the purchase price, and put the actual amount of the loan you will be seeking on its face (paragraph 2(c) of the FAR/BAR contract).  Surprisingly, I have seen contracts where that number was not filled in! 

Next, you should be certain that the box in Paragraph 8(b) is checked, to make clear that you are relying on a mortgage contingency to protect yourself.  That, too, is sometimes skipped in the rush to submit an offer on property that is drawing a lot of attention and offers.  Every year this language gets a little longer and more involved, but each blank should be filled in.  

Before you state the mortgage terms you wish to make a contingency, you should ask yourself the following question:  What are the WORST mortgage terms (if they were the best you could get) where you would still want to go forward with the deal, as opposed to cancelling if the lender offers you a less desirable interest rate or other terms.  Those are the terms you should insert.

Next, understand that you will not have the protection of this contingency if you don’t follow all of the requirements spelled out.  Be sure to read and understand them all.  You have a deadline for making application for a loan (a complete application, that is, with all information required by the lender).  There is a deadline for receiving your mortgage commitment, and if you fail to give notice that you haven’t been accepted by then, you can lose the benefit of the contingency.  

If your real estate agent or lender isn’t helping you understand and meet all these very detailed requirements, you are headed for trouble!  You might want to talk to a real estate lawyer.

ANDERSON & BRODERSEN, P.A., 
350 Corey Avenue, St. Pete Beach, FL  33706
(727) 363-6100 • www.PropertyLawGroup.com

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