15 Jun Mortgage Contingency
Our story begins with a lovely couple, Jack and Jill, who were in a search for a new home to enjoy the rest of their days.
Jack and Jill dreamed of building their home so they could include all their favorite styles and features. Our couple met with a builder, Bob the Builder, and told him all about their plans for their dream home and how they wanted it built. Jack and Jill both liked and trusted Bob, so they felt no need to involve an attorney, but relied on the realtor.
After some discussion, the three agreed on the terms for the house and a contract between them was signed. Bob would build the home and take on the expenses, and when it was built, Jack & Jill would pay the fair market value of the house.
Jack and Jill then started to ask mortgage lenders to lend them money to help the couple buy their home being built by Bob. After all, like your typical home buyer, they did not have the money to buy the house in full.
However, Jack and Jill were so excited about their new home that they did not stop to think about the details of their agreement with Bob. To their dismay, their contract with Bob did not contain a paragraph that allowed Jack and Jill to back out of the contract if they did not get a loan from a mortgage lender.
Therefore, because their contract did not allow them to back out if no loan was obtained, Jack & Jill were required to pay the full value of the home built by Bob when it was complete.
To their surprise, Jack and Jill were unable to procure a loan from a mortgage lender to help them purchase their home. They did not have the money for a purchase this big. Jack and Jill found themselves between a hill and a pail of water.
What we can learn from our friends Jack and Jill this week is to have your contracts reviewed by an attorney. We also learned that a mortgage contingency clause is extremely important in a contract to purchase real estate and it provides protection for both the buyer and the seller.