Texas Real Estate Sales Agent ExamTexas Real Estate LawEasy
A licensed real estate sales agent in Texas is representing a buyer. The buyer wants to include a provision in the purchase contract that allows them to terminate the contract if their loan application is denied within 10 days of the effective date. Which of the following clauses would best achieve this for the buyer?
- AAn acceleration clause
- BA force majeure clause
- CA financing contingency clause
- DAn 'as-is' clause
Show answer & explanationAnswer & explanation
Correct answer: C. A financing contingency clause
A financing contingency clause allows a buyer to terminate a contract without penalty if they are unable to obtain financing within a specified timeframe, protecting their earnest money.
Why the other options are wrong
- A. An acceleration clause is typically found in mortgage documents, making the entire loan balance due under certain conditions.
- B. A force majeure clause deals with unforeseen circumstances beyond the parties' control, not loan denial.
- D. 'As-is' clauses relate to the condition of the property, not financing.
Financing Contingency
A provision in a real estate contract that makes the agreement conditional upon the buyer obtaining a specific type of financing or loan approval within a set period.
- Protects the buyer's earnest money if financing falls through.
- Specifies terms for loan approval (e.g., interest rate, loan amount).
- Must have a clear deadline for loan approval.
Memory trick: Contingencies are contract 'conditions' that protect parties.