Expert: liznarr - 6/23/2009

Question
We are scheduled to settle 6/30.  Our Buyer does not have a mortgage commitment as of today because she had a prior FHA loan that was not disclosed.  She is demanding that we extend the settlement date before she will close on the previous FHA loan.  If we do not grant the extension are we entitled to the ernest money and will we be able to accept other offers on our property after the June 30th?  Will the Agreement of Sale be voided after June 30th if it does not go to settlement?

Answer
Hi Jeanette,

If your Contract of Sale is SUBJECT TO the Buyer obtaining financing; you do NOT grant her an extension; and she does not have loan approval in time to close by June 30 or any contract extension period stated in the Contract -- in the normal course of events you would not be entitled to the Buyer’s earnest money – and the Contract would be considered null and void at that time, with the Buyer receiving the earnest money back… unless you assert Breach of Contract on the Buyer’s part, or vice versa.  

HOWEVER, if your Buyer KNOWINGLY did not disclose a prior FHA loan with a mortgage balance that is preventing her from obtaining loan approval on your property now, you might have good cause to ask that her earnest money be forfeited to you on the basis of fraud (intentional misrepresentation).  This is a question that should be directed to an attorney, though, because I have not seen your Contract of Sale; nor can I give legal advice.  Make sure if you ask that her earnest money is forfeited to you, this would not hold up a future sale in the event this “lady” tries to make problems for you.

Read your Contract carefully and look for paragraphs as they relate to financing and applying for a mortgage, extensions, and default.

You can accept other offers on your property ANYTIME prior to closing, but they should include language that they are a first, second, or third, etc., backup offer to the “last name” current Contract and will not become primary until the current Contract is terminated or expired.  

If you have another buyer interested in your home, I would encourage you to get all the backup offers you can.  If your current buyer cannot close by June 30 or any contract extension period, you should then be able to proceed with a backup offer.  Before proceeding with any backup offer, however, be sure to check with an attorney to make sure any obstacles on your side have been cleared for you to go forward.

Good luck to you, and write again if you have additional questions.

Regards,
Elizabeth