Financing Contingency Revisited

As most of you probably understand by now, the most recent edits to the FAR/BAR contract created a seven (7) day window prior to closing in which neither party may terminate the contract. The reason this was done was to create some certainty in the closing process, and to attempt to eliminate opportunities for the parties to cancel deals so close to the closing date. Most of you also know that there are opportunities to increase that seven day period  (and thus creating a longer period where neither party may cancel the contract) if the Buyer provides either (a) written notice that it has received a loan commitment (note the contract does not require the Buyer to actually produce the loan commitment), or (b) written notice of its election to waive the financing contingency and proceed to closing. Obviously, if the Buyer provides the required notice of Buyer’s receipt of a loan commitment prior to the commencement of the seven (7) day window, then the financing contingency is deemed satisfied at that point in time (thus blocking the Seller’s ability to thereafter cancel the contract), subject only to the four remaining requirements in the contract (namely (a) Seller’s performance, (b) satisfaction of property related conditions in the loan commitment, (c) appraisal, and (d) financial ability of lender to fund the loan).

The question we receive time and time again is what happens if the financing contingency period concludes within this seven day window, or even on (or after) the closing date. In such event, the seven day window in which neither party may terminate the contract does not begin to run until the financing contingency window ends or the actual closing date itself, whichever first occurs. For example, if the contract calls for a 30 day financing contingency period and a 30 day closing window, then the seven day window never commences, and the Seller, in this instance, would not have the opportunity to cancel the contract prior to closing under this provision.

The reason why we bring this up is that as the market gets stronger, we have seen more Sellers attempt to use Buyer’s financing contingency to cancel a contract, and thus proceed to accept higher or more attractive offers. As such, it is imperative that one understands when and how the financing contingency truly operates (and more importantly, how it is properly satisfied) in order to protect your buyer’s contractual rights. As always, should you have any questions, we urge you to consult with your real estate attorney.

Sincerely,

Berlin Patten Ebling, PLLC

This communication is not intended to establish an attorney client relationship, and to the extent anything contained herein could be construed as legal advice or guidance, you are strongly encouraged to consult with your own attorney before relying upon any information contained herein.

All rights reserved. This copyrighted material may not be re-published without permission. Links are encouraged.

www.berlinpatten.com 

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2 thoughts on “Financing Contingency Revisited

  1. Do you have legal authority for the conclusion that the seven day window does not apply if the contingency period Is after the closing date?

    • It is pursuant to the language in the FR/BAR contract. The 7 day window language under the Financing Contingency provision reads as follows: If Buyer does not receive Loan Commitment by Loan Commitment Date, then thereafter either party may cancel this Contract…

      Consequently, if your Loan Commitment Date has not expired, the 7 day window does not apply.

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