Mortgage Contingency Clauses

Mortgage contingency clauses are essential provisions in real estate purchase contracts that state if a prospective buyer is unable to secure a mortgage with the right terms within a certain period of time, the buyer can call off the purchase and get his or her deposit back. These are also known as loan contingency clauses. If you are buying a home in Boston, it is important to retain an experienced real estate attorney to review a mortgage contingency clause and other aspects of your purchase contract, to make sure that the terms represent your true intentions.

Mortgage contingency clauses are crucial for prospective buyers of homes in Massachusetts. They make an agreement with a seller conditional on a buyer being able to obtain a mortgage with appropriate terms on a property. If a buyer cannot get a lender's firm commitment for a loan to buy the property in a certain period, the buyer can choose not to close the sale and also gets a refund of his full down payment.

In Massachusetts the standard form purchase and sale agreement includes a mortgage contingency clause that protects the buyer for a set period until he obtains the commitment from the lender. The buyer and seller can negotiate the time period, which is usually about 30 days from the execution of the purchase and sale agreement. This deadline must be workable. If you know that you will be unable to get a loan commitment within 30 days, you should ask for longer.

The loan commitment usually has conditions. For example, there may be an active contingency waiver that requires the buyer to cancel in writing a specified condition such as the mortgage contingency clause for the sale to move forward. Or there may be a passive loan contingency that states the buyer will close escrow unless the buyer notifies the seller in writing by a specified date that he has no loan commitment by a lender to purchase the property. A passive contingency waiver is problematic because many buyers forget about the deadline by which to inform the seller that no loan commitment has been secured. If there are conditions in a mortgage contingency clause you are not sure you can meet or control, you should negotiate for different conditions. An experienced attorney can negotiate for modified loan commitment terms.

A buyer that is unable to get the lender's commitment by the negotiated deadline can opt out of buying the particular house or ask the seller for an extension of the loan commitment deadline with the notice that if the seller will not extend the loan commitment period, the buyer will terminate the agreement.

The advice of an experienced real estate attorney when purchasing a home can be invaluable. A mortgage contingency clause can make a big difference in whether you complete the transaction to buy your Boston home, and it is important to have the purchase contract reviewed carefully by attorneys who understand your objectives and constraints. The experienced home financing attorneys of Pulgini & Norton can represent you in negotiations with the seller and advise you on loan terms. We represent clients in Somerville, Medford and Newton. Call us at 781-843-2200 or contact us via our online form for a consultation.