Connecticut Real Estate Attorney Law Blog

What are the Proper Terms in a Mortgage Contingency in my Real Estate Purchase Agreement

As I have written before, contract contingencies are very important elements of a real estate purchase agreement.  They are especially significant for the buyer, since a properly drafted and implemented contingency provision can provide significant legal protections for the buyer.

One of the most important and basic contingency provisions in the real estate purchase agreement is the mortgage contingency.  In basic terms the mortgage contingency provides that the buyer (who we assume has signed a binding purchase and sale agreement) is not obligated to complete the purchase if the buyer cannot obtain written mortgage approval.  This is a basic protection for the buyer, that if she cannot get financing for the purchase, the contract is canceled and she gets her earnest money deposit back. However as with the real of the purchase agreement,  the details of the contingency are very important.

The basic elements of the mortgage contingency are the mortgage amount, the interest rate, the term of the mortgage, and the date by which the mortgage must be obtained.  Connecticut actually has a statute which states the minimum requirements for a mortgage contingency (See Section 49-5b).  But the issue for the buyer is not usually satisfying the minimum requirements for a valid contingency, but protecting himself against unforeseen circumstances that interfere with obtaining a mortgage approval, but are not covered by the contingency language.

For instance, what if you obtain an approval but that approval has significant conditions, such as verification of income or credit, or sale of an existing property?  Is that a sufficient approval to allow the seller to force performance of the contract of sale?  What if it is a condo and the lender approves the mortgage but denies approval of the condo complex?  Is the buyer required to simply not be approved for financing by the mortgage contingency date, or is the buyer required to actually prove a denial or adverse action notice was issued?  What if the buyer does not actively pursue the mortgage approval?  What if the buyer does not get an approval, but the time set for the contingency provision passes and the seller is not notified?

These are all valid questions that should be addressed by a properly worded mortgage contingency provision.  In the event of a dispute, it is the language of the written contract that will control the obligations of the parties.  The typical mortgage contingency provision in a residential purchase agreement is a fill in the blank proposition, in which the operative terms of the contingency are part of the form contract being used (typically supplied by one of the real estate agents).  However, that form may or may not deal with the issues described above.  The best course of action is to review the proposed contract language with your real estate agent and mortgage provider as well as an experienced real estate attorney prior to signing the contract.

If you have any questions on a real estate contract in Connecticut or the proper terms of a mortgage contingency, please contact me.

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About the author:  Attorney Begemann is a member of the Connecticut Bar and practices real estate and business law in Connecticut.  As an experienced real estate attorney he represents individuals and lenders in residential and commercial loan closings across Connecticut, including the purchase, sale and refinance of real estate.

Attorney Paul H. Begemann, 2764 Whitney Avenue, Hamden, CT  06518

Phone 203-230-8739                                       Fax 800-483-1904

email

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5 commentsPaul Begemann • November 10 2009 01:12PM