Welcome to the first edition of my monthly blog! If there is anything I have learned, it is that every real estate transaction is different and, no matter how simple the deal is on its face, something ALWAYS comes up. My hope with this blog is to provide specialized insight into an important issue I am seeing. This won’t be your standard, run-of-the-mill information. It won’t be basic information that you can Google. My goal is to give you information that you can actually use that will put you a step ahead of the game and enhance your understanding of real estate transactions, straight from a real estate attorney.
This month I want to focus on Section 8(b) of the Florida “AS IS” Residential Contract for Sale and Purchase; better known as the Financing Contingency. I am sure anyone reading this is generally familiar with the standard framework: the buyer is allowed a certain period of time – generally, 30 to 45 days, to obtain loan approval from their lender. If the buyer is unable to do so, they are permitted to terminate the contract by written notice to the seller and receive a return of any earnest money they have placed in escrow. Seems simple enough, right? Of course, nothing is as simple as it seems.
There is a hidden trap buried in the fine print of the Financing Contingency itself. Let’s start by taking a look at Section 8(b)(iii):
(iii) If within the Loan Approval Period, Buyer obtains Loan Approval, Buyer shall notify Seller of same in writing prior to expiration of the Loan Approval Period; or, if Buyer is unable to obtain Loan Approval within Loan Approval Period but Buyer is satisfied with Buyer’s ability to obtain Loan Approval and proceed to Closing, Buyer shall deliver written notice to Seller confirming same, prior to the expiration of the Loan Approval Period.
Now, we all know that we need to provide notice within the Loan Approval Period if the buyer is unable to obtain Loan Approval and wants to terminate the contract. But what you might not know is what is stated in the provision above. The buyer also needs to provide written notice to the Seller prior to the expiration of the Loan Approval Period that they want to proceed. And the fact is that rarely, if ever, do I see this notice given (except, of course, if you are represented by the attorneys at Foremost Title & Escrow).
You’re probably asking, why does this matter? Why do I need to give notice that we are proceeding if we have received Loan Approval and have no intention to terminate? Hasn’t the financing contingency run its course? The answer lies further in the Financing Contingency and has major implications. So, let’s now jump to the first sentence of Section 8(b)(v):
(v) If Buyer fails to timely deliver any written notice provided in Paragraph 8(b)(iii) or (iv), above, to Seller prior to expiration of the Loan Approval Period, then Buyer shall proceed forward with this Contract as though Paragraph 8(a), above, had been checked as of the Effective Date; provided, however, Seller may elect to terminate.
And there, my friends, is the hidden land mine. You see, if the buyer fails to provide notice that it is proceeding with the transaction – either because the buyer obtained Loan Approval or is choosing to move forward without it – then the contract is deemed amended to completely remove the financing contingency altogether, as Paragraph 8(a) states “[t]his is a cash transaction with no financing contingency”.
You still may be asking why this is important. We have loan approval and are moving forward, so why should it matter that the contract is now treated as if Paragraph 8(a) was checked? SPOILER: the consequences could actually be quite severe. And that is where the skilled attorneys and staff at Foremost Title & Escrow come in. We would be happy to discuss this or any other questions you may have. That’s why you should EXPECT THE MOST WHEN YOU CLOSE WITH FOREMOST.
Benjamin P. Nigro
Partner