Protect Your Earnest Money – Finance Contingency Clause
When buying or selling a home once an offer is mutually accepted by the buyer and seller escrow is open. When escrow is open, the buyer deposits earnest money to the escrow company.
Earnest money, also known as a good faith deposit, is the money paid by the buyer to prove that they’re serious about their offer. The earnest money deposit is money that goes towards the buyers down payment.
There are some contingencies in the purchase contract both the buyer and seller need to be aware.
One of many contingency clauses within the purchase contract both buyer and seller need to be aware of is the “Unfulfilled Loan Contingency” clause.
I have had three listing, in the last 6 months, were I was representing the seller and the seller kept the buyers earnest money as a result of the buyer not following the loan contingency clause.
The “Unfulfilled Loan Contingency” states that if the buyer is not able to obtain loan approval the buyer needs to notify the seller no later than three (3) days prior to the close of escrow date listed on the purchase contract. The clause is in section 2C lines 59-61 within the Arizona residential purchase contract.
So if you are a buyer and you are having issues with your financing it is extremely important to notify the seller 3 days prior to the close of escrow date. If you don’t you will lose your earnest money deposit.
If you are the seller and they buyer is not able to get financing and does not notify you 3 days before the close of escrow date the earnest money deposit is forfeited by the buyer. The escrow company will then issue a check to the seller for the amount of the earnest money.
It so important to have an agent that knows the purchase contract represent those that are buying or selling a home so there are NO surprises. Surprises are only good on birthdays!
