A real estate contingency is a condition that is included in the contract. These must be fulfilled by the parties they apply to in order for the final closing steps to take place. If the contingencies are not fulfilled within the specified time, the buyer can usually walk away from the deal. Contingencies must often be met during the escrow period of the home sales transaction.
A financing contingency is a requirement that the buyer secure a suitable amount of financing before the deal can be completed. In most cases, this will come in the form of a loan, usually a mortgage. This is reassuring for the seller, as it can sometimes happen that a loan might fall through at the last minute right before the home sale is completed. This puts the seller at a disadvantage and can prevent them from selling their house in a timely manner.
Thus, the financing contingency helps ensure that the buyer will be able to afford the initial payments and will continue to be financially responsible.
In the past, financing contingencies were sometimes not used. Instead, the buyer might have provided a pre-approval or pre-qualification document from a lender, showing that they would qualify for a loan. In some instances, this is still a suitable practice. However, again the danger is if the person is not approved at the last minute right before the sale.
Another alternative is for the seller to accept only all-cash offers and forgo a financing contingency altogether. This is not always a realistic option as many buyers in recent years do not have the cash for such transactions. Thus, financing contingencies have become more popular in real estate contracts.
Depending on the circumstances, failure to meet the conditions of a financing contingency can cause the entire home sales transaction to fall through. In some cases, it can be considered a breach of a real estate contract if the terms were agreed to in a contract. This may result in a damages award for the non-breaching party. This can happen, for instance, if the failure to secure financing has caused the other party to lose profit in some way.
In other cases, the failed contingency may simply result in a re-negotiating of sales terms if the parties are still willing to work with each other. This all depends on the relationship between the parties and the facts involved in the case.
Financing contingencies can sometimes be complex and can often affect the entire outcome of a real estate transaction. You may need to hire a mortgage lawyer if you need help with any real estate issue. Your attorney can help you negotiate the terms of a financing contingency, and can review the contract to ensure that your rights are secured. If you have any legal disputes or need to file a lawsuit, your lawyer can represent you in court also.