Florida Real Estate Broker ExaminationReal Estate Law and RegulationsMedium
A buyer enters into a contract to purchase a property in Florida. The contract includes a financing contingency, stating that the buyer must obtain a loan commitment within 30 days. The buyer diligently applies for a loan but is denied within the 30-day period. What is the most likely outcome regarding the sales contract?
- AThe buyer is in breach of contract and forfeits their earnest money deposit.
- BThe buyer must seek alternative financing, otherwise the contract remains binding.
- CThe seller can extend the financing contingency period at their discretion.
- DThe contract becomes voidable at the buyer's option, and the earnest money is returned.
Show answer & explanationAnswer & explanation
Correct answer: D. The contract becomes voidable at the buyer's option, and the earnest money is returned.
A financing contingency protects the buyer. If the buyer makes a good-faith effort to obtain financing but is denied within the stipulated period, the contingency is not met, allowing the buyer to void the contract and receive their earnest money back.
Why the other options are wrong
- A. The buyer is not in breach if they act in good faith and the contingency is not met.
- B. The buyer is not obligated to seek alternative financing if the contingency fails, unless the contract specifically states otherwise.
- C. The seller cannot unilaterally extend the period; it would require mutual agreement.
Financing Contingency
A clause in a purchase contract that makes the agreement contingent upon the buyer obtaining a specified loan within a certain timeframe.
- Protects the buyer from losing earnest money if financing fails.
- Requires buyer's good-faith effort to obtain financing.
- If not met, buyer can usually terminate and get deposit back.
- Must specify loan terms and deadline.
Memory trick: If the loan doesn't click, the deal won't stick.