My husband and I are in contract to close on a property in CT on 8/1/13, however our mortgage loan has been denied. We are currently seeking another loan with a lender. According to the attorney who was referred to us by our agent; if we do not have a home loan on 8/1/13 the sellers will keep our entire earnest funds. Please tell me if this is legal, if so please let me know where on the contract I can find this stating the seller is entitled to the full earnest funds. Thank you.
1 Answer from Attorneys
Usually on the bottom of the first page or top of the second page is Mortgage Contingency clause, which says that you are applying for a mortgage for such and such amount at x interest, etc. It also says that if you don't get mortgage approval by the date in the contingency clause, so long as you notify the seller BY THAT DATE, you can back out of the contract and get your deposit back. If you had not gotten the mortgage approval by that date, did you notify the seller? If not, why not?
There's another paragraph in the middle somewhere, titled "Default". It says that if you are in default, seller gets to keep the deposit.
You may not be in default yet, however. Unless the contract says that as to the date for closing "time is of the essence", (and it pretty much has to use those exact words) then you have a "reasonable" amount of time to close. The cases say what is reasonable depends on the circumstances, but is usually between 2 and 4 weeks. so if you hustle your butt off and get a mortgage and be ready to close by the end of August, you shouldn't be in default. Of course, if you timely notified the seller about your inability to obtain the first mortgage, you should be fine.