One of the most important parts of any real estate contract where your buyer is relying on financing to purchase the property is the financing contingency. Since most buyers will need to borrow money to purchase that dream home, a financing contingency protects those buyers by allowing them to back out of the contract and get their deposit back in case they cannot get the funds necessary to close. It is a crucial safety net that allows parties to put a property under contract as they work towards securing the funds to close. Many agents who are familiar with the commonly used FR/BAR contracts believe that filling out Section 8(b) of the contract is all they need to ensure their clients have a financing contingency.
But wait, there’s more! Under recent case law in Florida (Florida Inv. Group 100, LLC v. Lafont, 2019) and the terms of the FR/BAR contracts, the financing contingency actually may not trigger unless Section (2)(c) of the FR/BAR contracts is filled out.
The definition of “Loan Amount” in the FR/BAR contracts is the amount that is written into Section 2(c). Loan Amount, in turn, is an essential element of the definition of “Loan Approval”, since there cannot be Loan Approval without a Loan Amount. If the Loan Amount in Section 2(c) is missing, the Loan Approval (as defined by the contract) is never delivered, and therefore it could be argued it is a legal impossibility for there to be a Loan Approval requirement. In other words, if you leave Section 2(c) blank, your client may not have a financing contingency, even if you fill out Section 8(b).
All too often, we see Section 2(c) left blank on the FR/BAR contracts. Since effectively by having 2(c) blank, your Loan Amount is $0.00, the Loan Approval is also then based on obtaining a Loan Approval for $0.00. You can fill out Section 2(c) with a dollar amount or a percentage of the purchase price. Just make sure you fill in the blank in order to protect your client!
For more information on financing contingencies, or if you have any other questions on preparing contracts, we recommend you reach out to your local real estate attorney.
Bishoy M. Habib, Esq.,email@example.com
Berlin Patten Ebling, PLLC
This communication is not intended to establish an attorney client relationship, and to the extent anything contained herein could be construed as legal advice or guidance, you are strongly encouraged to consult with your own attorney before relying upon any information contained herein.
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