As you are aware, real estate purchase and sale contracts have many contingencies. They may be contingent upon inspections, delivery of deposits, financing, delivery of marketable title, approval from various associations and the ability to tender the funds necessary to close. Certain versions of the purchase and sales contract treat these contingencies differently. The purpose of this article is to highlight the financing contingency provision in both the Contract for Residential Sale and Purchase, CRSP-12 / 13 (“CRSP”) and the Florida Association of Realtors/ Florida Bar, (“FAR/BAR”) versions of the contract.
In both the CRSP and FAR/BAR versions of the contract the Buyer must apply for financing within a certain timeframe. Similarly, in both contract versions the Buyer has a finite period of time in which to obtain a loan commitment. Once the Buyer obtains and delivers the loan commitment to the Seller, the financing contingency is essentially waived and the Buyer’s deposit is put at risk; subject only to a limited set of circumstances such as the property failing to appraise. These circumstances are essentially the same in both versions of the contract.
The contract versions contain one critical difference as they pertain to a Buyer who is unable to obtain a loan commitment.
In the FAR/BAR version of the contract, should the Buyer fail to obtain a loan commitment, the Buyer may cancel the contract by delivering written notice to the Seller or the Buyer may deliver a written waiver of the financing contingency. The Seller also may cancel the contract once the loan commitment period has expired assuming the Buyer has not delivered the loan commitment or waived the contingency. The contract does not require the Buyer to provide the Seller with notice prior to the expiration of the commitment period. In both instances of cancellation (whether Buyer initiates or Seller initiates the cancelation), the deposit is to be refunded to the Buyer.
In the CRSP version of the contract, should the Buyer fail to obtain a loan commitment, the Buyer must provide Seller with written notice prior to the expiration of the commitment period. Upon providing written notice in a timely fashion, either party may cancel the contract, whereupon Buyer’s deposit shall be refunded to the Buyer. The contract further states that: “Buyer’s failure to timely provide Seller with written notice that Buyer is unable to obtain a commitment will result in forfeiture of Buyer’s deposit(s) if Buyer fails to close.”
The timing of notice in the CRSP version of the contract is critical. The burden is on the Buyer to deliver notice to Seller prior to the expiration of the commitment period. Failing to provide timely notice to the Seller places Buyer’s deposit in jeopardy.
In the case of Bellon v. Acosta, 10 So. 3rd 1165 (Fla. 3rd DCA 2009), an earlier version of the FAR (now the CRSP) contract was used. The financing contingency language in the Acosta contract was essentially the same as financing contingency language in the CRSP contract. In Acosta, the Buyer failed to provide written notice to the Seller within the commitment period that Buyer was unable to obtain financing. The commitment period expired and the Buyer then failed to close. The Third District Court of Appeals of Florida held that Buyer’s failure to provide timely notice of Buyer’s inability to obtain a commitment, entitled the Seller to retain Buyer’s deposit. The deposit amount was $100,000.00.
In order to prevent a Buyer’s deposit from being placed at risk, all contract contingencies should be set forth in writing – and exchanged between parties – upon the contract becoming effective. Failure to do so could result in forfeiture of Buyer’s deposit, as was the case in Acosta.