Edgewood, WA Real Estate Blog

Update:  The issue discussed in the following post will be rendered moot with new forms to be published October 15, 2007.

I made the follow comment to a post made by Jason Mook: Switching Boats Mid Stream.

This issue concerns the typical financing contingency found in most real estate contracts. In essence, the financing contingency says the purchase and sale of a property is subject to the buyer obtaining financing. If the buyer can’t obtain financing, they can’t buy the property (they won’t have the money). The purchase and sale agreement is terminated and the buyer’s earnest money is returned. But, just because a buyer is unable to obtain financing under the strict terms of the contingency, doesn’t always mean they can terminate the agreement and get their earnest money back. They have to have made a good faith effort.

Jason – A stimulating post. I agree with your position as far as it goes.

To my mind, and from a seller’s perspective, as long as the buyer is making a good faith effort to obtain financing, you’d want to give the buyer the benefit of the doubt and let them pursue (within a reasonable time frame with the seller’s agent continuously monitoring, etc.) financing.

In your scenario, the buyer switches lenders after; 1) the seller receives a loan commitment letter per NWMLS 22a and 2) the underwriter subsequently fails the file.

However, consider the scenario where a buyer’s offer is accepted by the seller in part based upon a “tight” preapproval letter (where the loan commitment is subject only to satisfactory appraisal, clear title and title insurance, etc.)

After mutual acceptance and prior to receiving a loan commitment letter per NWMLS 22a, the buyer switches lenders.

Subsequently, the buyer is unable to obtain financing from the second lender and claims the financing contingency specified by NWMLS 22a has failed.

The original preapproval letter was material to the seller accepting the buyer’s offer.

And the winner is… the lawyers?