One of the many interesting things we do at the Florida Real Estate Commission (FREC) is decide escrow disputes from all over the state, and render escrow disbursement orders (EDOs) telling the parties how to distribute the funds. Many of these controversies arise from the execution and interpretation of the FAR/BAR contract’s tricky financing contingency.
The new FAR/BAR contract forms effective April, 2017 contain a variety of revisions, including an overhaul of the financing contingency. Among other things, the old provision attempted to provide sellers with some certainty they wouldn’t be tripped up at the last minute by a buyer’s late-breaking credit denial.
Unfortunately, many buyers’ agents did not pay attention to the built-in timelines, and how those jibed with the deadlines they established for the commitment date, closing, etc. As a result, we often saw cases where these agents unwittingly gave an untimely notice of cancellation that resulted in the buyer’s funds being due and owing to the seller.
A source of general confusion was what happened on the financing commitment deadline – which was nothing. Under the old form, the commitment deadline was merely a stepping off point for other possibilities (i.e., cancellation by either party, provided the same happened prior to 7-days before the closing date, etc.).
The new contingency takes a more definitive approach, and makes it clear that if a buyer cannot obtain a “Loan Approval” within the “Loan Approval Period,” then they have to give written notice within the Loan Approval Period if they want to terminate the contract and get their money back. If timely notice of cancellation is not given, then the contingency is waived. It is a hard and fast deadline, with no exceptions as could be the case in the outgoing contract form. Period, end of story.
The seller likewise still has their cancellation option, this time within three days after the expiration of the Loan Approval Period if they’ve not received notice from the buyer that (i) they received their Loan Approval, or if they have not (ii) tendered a notice of cancellation or (iii) a waiver of the financing contingency. For the queasy seller who has little faith in their buyer’s ability to close, this is a nice, albeit quick, bit of built-in flexibility.
What this contract re-draft did not do is remove the carve-out for a buyer’s last-minute, no consequence cancellation if the property doesn’t appraise, or if “Property related conditions of the Loan Approval have not been met…” From the listing agent’s perspective, this remains a detail to manage and potentially mitigate depending on how far in the future the closing date is, and how it lines up with the Loan Approval Period deadline.
The savvy Realtor will utilize an appraisal contingency rider to manage timing of the issue, or perhaps even strike the carve-out language so it is clear the appraisal is not an excuse upon which the buyer can rely for termination of the contract beyond the deadline for the Loan Approval.
How to manage the property-related conditions exception is less clear, since the buyer is still not required to divulge a copy of their loan commitment (but rather just provide notice of its receipt). In one recent case, a credit denial a day or two before closing based on a lack of reserves held by the condominium association resulted in the FREC voting to return the buyer’s deposit. While to most this was an obvious outcome, it does nothing to provide a seller, who may have already packed up and moved, with any peace of mind.
Faced with this reality, a listing agent may attempt to strike the property-related conditions language of the contingency. Should the buyer refuse, the agent’s remaining choice is to keep abreast of the Loan Approval process, and try to discern any conditions of particular concern. The agent may also request a copy of the Buyer’s Loan Approval, although there’s no guaranty it will be divulged. The end goal is to keep the seller as informed as possible about what, if any, potential pitfalls may exist in the period between Loan Approval and closing.
As I have said so many times before, contract forms are a Realtor’s stock and trade. If an agent has not made it a point to learn and thoroughly understand each these documents, then one cannot help but question their overall commitment to professional practice.
Knowledge of a contract’s inner-workings breeds nothing but a better intuition about how to deal with the practical situations the agent will encounter every day out in the field. This most recent form overhaul presents Realtors with yet another opportunity to become even more familiar with what this paperwork says and means.
As always, we wish you safe travels along on the road to closing, and please do not hesitate to reach out should you have questions regarding this, or any other, subject with which we might be able to assist.
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