The Delicate Balance Of Contract Contingencies
Financing Contingency: If a buyer intends to obtain financing for the purchase of real property in Florida a contingency is drafted which allows the buyer to cancel the contract and receive a return of all escrow deposits made under the contract if the buyer fails to obtain a mortgage loan commitment from a lender during the financing period. It is important to note that the buyer is obligated to make a formal loan application within a specified number of days and to use diligence to obtain the financing. Therefore, a buyer should interview at least two potential mortgage sources before even entering into the contract to become familiar with the amount of down payment needed, the current interest rate, the financial info gathered, and the expected time frame. The mortgage loan approval process has recently become more complicated and lengthy in response to the mortgage foreclosure crisis so it is important to have realistic time frames in the financing contingency clause. An appropriate amount of time might be 30 days for a U.S. Tax Payer but may be up to 60 days for a foreign national.
Document Review Contingency: Florida law provides buyers of residential condominiums a right to cancel the contract after review of the condominium documents, rules and regulations, and financials. However, there is no built-in contingency for the review of the same documents pertaining to the documents of subdivisions with homeowner’s associations. Therefore, if a buyer wishes to review the documents, a provision must be added.
Sale of Existing Home: Some buyers find their dream home before they have sold their existing home. In this case, a contingency is drafted allowing the buyer to cancel the contract and receive a return of the escrow deposit if they are unable to complete the sale of their existing home within a reasonable time period. This type of contingency is more prevalent in a buyers’ market but nearly non-existent in a sellers’ market.
Insurance Contingency: At times the cost of homeowner’s insurance and/or flood insurance can be shocking to those purchasing real property in Florida for the first time. Older homes, coastal homes and homes in low-lying areas (which are not necessarily close to the coast) are of the most concern. To eliminate this risk, a clause can be drafted allowing the buyer to cancel the contract if he or she is unable to obtain insurance policies at a cost below an agreed-upon dollar amount.
Short Sale Approval Contingency: If a seller is selling his or her home for an amount insufficient to pay off the mortgage(s) encumbering the home then the seller’s obligation to close is made contingent- upon the seller obtaining approval from the seller’s lender(s). The approval process can take several months. There are several pre-printed Short Sale Addenda circulating. I highly recommend that a buyer or seller consult an attorney before they sign one.
Of course, there are many more contingencies that could be drafted to meet the specific needs of a buyer or seller and these should be discussed with an attorney as early as possible in the home-hunting process. Also, keep in mind that a contract with too many contingencies is less apt to be accepted by the party on the other side. Your attorney will assist in selecting the appropriate clauses under the circumstances.
Areas of Practice: Real Estate Closings, Title Insurance, Residential & Commercial Real Estate Closings, Contract Preparation, Deeds & Mortgages, Wills & Trusts