The rule of thumb that most REALTORS® follow in evaluating whether a financing contingency is enforceable is whether a mortgage loan payment can be calculated from the information referenced in the financing contingency. When a REALTOR® writes in “TBD” for “to be determined” in one or more of the terms in a financing contingency, no mortgage payment can be determined and the financing contingency lacks definitiveness and certainty. This lack of definitiveness and certainty puts the entire purchase and sale agreement at risk of being found to be unenforceable.
Some REALTORS® have argued that writing in TBD into one of the mortgage terms of the financing contingency may actually give their buyer clients flexibility since they can use this contractual defect to get out of the contract at any time up until the closing. While this may be the case, it also gives the seller the right to similarly terminate the contract. Therefore, this is not a tactic REALTORS® should employ on behalf of a client unless the client is willing to accept the risk of the contract being held unenforceable. For a buyer, this also represents the risk of losing the property altogether.
2 >> What was the logic of the GAR Forms Committee in providing an “Approved Lender” section in the GAR Financing Contingency Exhibits?
The mortgage lender that a buyer selects can have a significant impact on the likelihood of the transaction closing. Some lenders have better reputations than others in terms of getting loans approved and closed. Lenders unfamiliar with a particular housing market or unknown in a community may be viewed as less likely or able to perform than a lender who is actively making loans in the community.
The GAR Forms Committee added an Approved Lender section to its financing exhibits so that the mortgage lender(s) the buyer is planning to use could become part of the negotiations between buyers and sellers in the home buying and selling process. For example, all other things being equal, a seller might view an offer from a buyer more favorably who has identified that he or she will be working with a well-known mortgage lender with a good reputation. Similarly, a buyer wanting his or her offer to be well-received by the seller might list some well-regarded lenders in the Approved Lender list to help convince the seller that the buyer’s choice of lenders will increase the likelihood of the transaction closing.
Should a buyer routinely fill in a lender(s) on the Approved Lender section of the GAR financing contingencies and, if so, how many lenders should they provide? As with many things, the answer to this question is that it depends. There is a downside to filling in the names of possible lenders because a loan denial letter may only come from one of the approved lenders listed. If the loan denial letter is from a lender not listed in the Approved Lender section, the letter
is ineffective. On the other hand, if the Approved Lender list is left blank, the buyer can provide a loan denial letter from any institutional mortgage lender. As a result of this, buyers should probably only fill in the names of lenders in the Approved Lender section of the GAR financing contingencies if in doing so, it potentially improves the quality of the offer being made to the seller. Additionally, if buyers are going to fill in names of lenders on the approved list, they are better off including as many names of mortgage lenders as possible since this gives the buyer greater flexibility to pursue mortgage financing.
3 >> If the buyer is turned down for a loan during the financing contingency period, does the buyer always get back his/her earnest money?
The answer to this question is no. With the financing contingencies on the GAR Forms, for the buyer to get back his/ her earnest money the loan must not only be timely denied, the loan denial must also be for the right reasons. Under the GAR Forms, the loan denial letter cannot be based upon:
<< A >> the buyer lacking sufficient funds to close (other than the loan amount);
<< B >> the buyer not having leased or sold other real property (unless the Purchase and Sale Agreement is subject to such a contingency); or
<< C >> the buyer not having provided the lender in a timely fashion with all information required by the lender.
So for example, if the buyer is turned down for a loan due to the buyer not getting the lender the needed paperwork, then it would be unfair for the buyer to be able to take advantage of not fulfilling his/her obligations to timely apply for mortgage financing, only to then get back his or her earnest money.
4 >> Whose responsibility is it to obtain a loan denial letter and how quickly does it have to be provided?
It is the buyer’s responsibility to obtain a loan denial letter and to timely provide it to the seller. Under recent changes to the GAR Forms, the letter must be provided to the seller within seven days from the date that the buyer notifies the seller that he or she has been turned down for a loan. For example, on the 15th day of a 21-day financing contingency period, the lender informs the buyer that he or she has been turned down for a loan. The buyer sends the seller a notice terminating the contract due to an inability to obtain financing on the 17th day of the financing contingency. The buyer then has an additional seven days from this date (or until and through the 24th day from the beginning of the financing contingency) to provide the seller with the loan denial letter.
14 I GEORGIA REALTOR® FALL ISSUE 2016
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