Class Chapters |
| 1 | Enforceable Contracts | | | | 2 | Contract Writing Basics | | | | 3 | Real Estate Licensee Responsibilities | | | | 4 | Ways to Take Title | | | | 5 | Purchaser's Obligations | | | | 6 | Seller's (Builder's) Obligations | | | | 7 | Conclusion | | | | 8 | Final Review | | |
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Instructor |
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Lynn Palmer |
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| Contract Law for New Home Sales Class |
B. Obtaining Financing
 Purchasers are obligated to provide proof of funds (if they are paying cash) or obtain approval for a new home mortgage. Typically, new home contracts, may be written contingent upon securing a mortgage, but often provide a requirement for the purchaser to apply for a loan within a specified number of days from the date of the contract and to also obtain final loan approval within a specified number of days.
The following example is a “Financing Contingency” section from a homebuilder’s contract:
LOAN QUALIFICATION AND APPROVAL. Purchaser shall submit a complete, truthful and proper loan application to Lender within five (5) days from the Agreement Date and Purchaser shall, within five (5) days of the Agreement Date, provide Seller with proof that Purchaser has submitted the loan application to the Lender. Purchaser shall have sixty (60) days from the Agreement Date (the “Financing Contingency Period”) to make all necessary financing arrangements and to obtain all necessary commitments and/or approvals for such mortgage loan.
Purchaser shall provide Lender with all documents reasonably requested by Lender within five (5) days of request by Lender. Purchaser shall provide Seller with a copy of Purchaser’s pre-qualification approval within two (2) days of Purchaser’s receipt thereof, and Purchaser shall thereafter diligently pursue all other necessary commitments and/or approvals for such loan. Purchaser hereby authorizes the Lender to provide directly to Seller a copy of Purchaser’s pre-qualification approval. Purchaser authorizes Seller to order or obtain a credit report regarding Purchaser from a credit reporting agency or other source using Seller’s affiliated companies, including Preferred Lender, as necessary at no cost to Purchaser. Purchaser also authorizes Seller to contact Lender regarding the status of Purchaser’s financing and authorizes Lender to disclose to Seller any and all information regarding Purchaser’s loan.
If Purchaser fully and timely fulfills its obligations under this Section but is unable to obtain the necessary loan commitment and/or approval within the Financing Contingency Period, either party may cancel this Agreement by providing the other party and Escrow Agent with a written cancellation notice, whereupon this Agreement shall be cancelled and the Deposit shall be returned to Purchaser. Such cancellation notices must be given by Purchaser prior to the expiration of the Financing Contingency Period and Seller may give such cancellation notice at any time. Upon such cancellation, neither party shall thereafter have any further rights, obligations or liabilities to the other party hereunder. If Purchaser does not provide such cancellation notice to Seller and Escrow Agent prior to the expiration of the Financing Contingency Period, and if Seller elects not to cancel this Agreement as a result thereof, this financing contingency shall be deemed satisfied or waived and Purchaser shall thereafter be obligated to fully and timely comply with all terms and provisions of this Agreement and Purchaser shall have no further right to cancel this Agreement or to receive the return of any Deposit due to any matters, issues or delays relating to its financing or its Lender. If Purchaser is only able to qualify for a loan less than the mortgage amount indicated in Section 1 and the parties have not elected to cancel this Agreement during the Financing Contingency Period, the difference between the mortgage amount specified in Section 1 and the maximum allowable loan amount as determined by the Lender shall be deposited in cash by Purchaser with Seller within five (5) business days after notification of loan approval and the failure to do so by Purchaser shall be deemed a default under this Agreement.
Purchaser hereby authorizes the Lender to provide loan status updates to Seller. Purchaser shall not, without Seller’s consent, which may be withheld in Seller’s sole discretion, switch lenders after Purchaser has applied for loan qualification and/or approval; provided, however, in no event shall Purchaser change from Preferred Lender to Alternative Lender during thirty (30) day period prior to Closing. Any change in lenders, without the prior written approval of Seller, shall be deemed a default by Purchaser under this Agreement.
In the above example you will notice that, although the purchaser is provided with 60 days to obtain financing, it is the purchaser’s obligation to notify the seller (homebuilder) within the “financing contingency period” if the purchaser is unable to obtain financing. If there is no such notification from the purchaser, the “financing contingency period” ends and the earnest money is no longer refundable, if, for any reason, the purchaser does not obtain financing.
Why the 60-day period? Most builders do not want to invest the capital to start construction of a new home unless they have assurance that the purchaser will be able to complete the purchase. In this example, the 60 days is about the same length of time that is allowed for finalization of the purchaser’s option selections and for the process of obtaining the building permit through the appropriate municipality. At the end of 60 days, the builder is prepared to start construction, and wants to know, at that time, that the transaction is a “go.”
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