The new FAR/BAR contract forms, which came into effect in April, 2017 introduced a number of key changes. These include the revision of the financing contingency. The overhaul was necessitated by the confusion surrounding the contingency of Section 8(b). The concept of a written loan commitment is no longer applicable due to limited use in real estate transactions.
The old provision was aimed at ensuring certainty for sellers when it comes to the possibility of being inconvenienced by buyers’ late-breaking credit denial.
On the other hand, a number of buyers’ agents failed to consider the link between built-in timelines and deadlines they listed as closing or commitment date. The discrepancy often resulted in the issuing of untimely cancellation notices. This meant that buyer’s funds were prematurely deemed as due.
The old contract form regarded the commitment deadline as a stepping off point. As a result, the provision became a source of considerable confusion.
For many, the commitment deadline provided an opportunity to consider additional arrangements. Either party could cancel the contract in the event that the same occurred within the prescribed period, which is seven days before the commitment or closing date.
The new provision eliminates any ambiguity associated with the old contract form. It stipulates that buyers are required to submit a written notice if they are unable to obtain a loan approval within the specified period. This requirement is applicable when the buyer intends to terminate the contract and obtain a refund.
The revised contingency does not make any exceptions when it comes to the deadline. Sellers can exercise the cancellation option three days following the expiration of the approval period. The condition comes into effect in the event that the buyer does not submit the notice.
The seller’s right to cancel is applicable under various circumstances, including:
- The buyer received approval
- The buyer failed to tender the cancellation notice
- A waiver of financing contingency applies to the buyer’s case
The new FAR/BAR provides flexibility to sellers who are unsure of the buyer’s ability to close. However, some stakeholders may be concerned that the contract overhaul failed to address the issue of the buyer’s last-minute, no consequence cancellation. Such a termination would take place when an appraisal of the property falls through. The same applies to cases in which the buyer does not meet conditions of the loan approval.
For more information, talk to the professionals at All Property Title.