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Hotline FAQS: Commonly Misunderstood Clauses

by Clouser, Kacy on

In case you haven’t heard, the housing market is a bit crazy out there. Shocking, I know. The PAR Legal Hotline has been just as busy, so perfect time to briefly cover some of the more commonly misunderstood clauses.

“Since my buyer cannot get a mortgage, they can go ahead and terminate, right?”

Uhh, no. A buyer does have protection under the mortgage contingency, but they do NOT have the right to terminate. To repeat: nothing in the mortgage contingency gives the buyer the right to terminate. There are a lot of varying reasons that a buyer would not qualify for the mortgage. However, regardless of the reason, the buyer must continue to make a good faith effort to obtain mortgage financing.

So, how should a mortgage denial be handled? By communicating with the seller’s agent and either negotiating, executing a mutual release or having the seller terminate if after the mortgage commitment date. Nobody wants to sit in a deal that they are not going to be able to close.

“Who can terminate during the negotiation period?”

Trick question. No one. We see this come up a couple of different ways. First, the seller is really annoyed with the requests from the buyer, so they just want to terminate and relist the property. Wrong. The seller does not have the right to terminate the Agreement of Sale at all under the inspection contingency. The seller could simply refuse to do the requested repairs, which potentially goads the buyer into terminating, but the seller has no right to terminate on their own.

The second scenario we see this question pop up is the seller has made a ridiculous denial or response on day two and buyer is wants to just terminate now rather than waiting until the end of the negotiation period. Well, the buyer does not actually have the right to terminate. Paragraph 13(B)(2) gives the buyer the right to terminate during the initial contingency period and paragraph 13(B)(3)(b)(2) gives the buyer the right to terminate during the two-day period at the end, but there is nothing in the agreement that allows the buyer the right to terminate during the five-day negotiation period.

So what can the parties do? Either wait it out a few more days if they are the buyer or parties can execute a mutual release from the agreement.

“If a deadline falls on a weekend or a holiday, is it automatically extended to the next business day?”

Nope. Paragraph 5(B) clearly states that all days are counted towards all deadlines with no exceptions. Though it’s possible for the parties to amend that language to count days in some other way, we strongly recommend against doing so because it can add layers of confusion to what is otherwise a straightforward calendar exercise.

For example, I had a really fun call recently (yes, he knows I’m writing this) where the agent was asking about inspection contingency deadlines where they had added sort of clause. The caller was asking about the appropriate deadline for that two-day period at the end of the contingency, but then during the call, he realized that both the inspection and negotiation periods may have been incorrectly calculated. The lesson here? Plan. Plan ahead. Take a look at the calendar and plan to see when things might fall. While there is no guarantee as to when the agreement will be fully executed, look at the calendar when negotiating the agreement and just change the number of days for certain deadlines to avoid conflicts rather than trying to rely on a clause that may or may not actually do what you want it to do.

How am I possibly supposed to figure these things out?

Aside from reading JustListed and calling the PAR Legal Hotline with your individual questions, brokers and agents should review the Guidelines for Preparation and Use for the forms you use the most. This is a members-only (you’ll need to log in to the PAR website) that walks you through some of the most common aspects of nearly every PAR form and can pre-answer some of your common questions. They’re also a great resource for things like new agent training and broker sales meetings.

Topics

Agreement of sale PAR Legal Hotline Form ASR
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Comments (4)

Comments

  • john collins    April 8, 2022 | 8:39 am

    Great article. TY

    Reply to john collins
  • Dianne Montana    April 8, 2022 | 2:59 pm

    Thank you.. I love these types of articles. Very informative and always a good refresher…

    Reply to Dianne Montana
  • Deborah Dowd Audett    April 11, 2022 | 10:45 am

    Thank you for this article. I have concerns about how the mortgage contingency plays out for a buyer. It seems there should be an opportunity for a buyer to terminate if they receive a mortgage denial. What if the mortgage commitment is not received by settlement? Does buyer have an obligation to keep trying to obtain financing? If they finally get approval, now the seller could refuse to sell to them because it is passed the settlement date.

    Reply to Deborah Dowd Audett
    • Clouser, Kacy    April 20, 2022 | 9:02 am

      Hello, Deborah. If the mortgage commitment is not received by settlement, the Buyer has protection under 8(B)(3). There is no obligation to continue to attempt to obtain financing after the settlement date. Thanks.

      Reply to Clouser, Kacy

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