Day 32
The purchase and sale agreement for 12 Birch Lane is $540,000. The buyer has 30 days to obtain a written mortgage commitment, and closing is set for 45 days. The contract states that time is of the essence and that the buyer must notify the seller in writing if financing is not obtained. On day 31 the buyer's loan officer says the loan was denied because of a new car payment. Buyer's agent Lisa learns on day 32 and leaves a voicemail for the listing agent. The seller's agent says the contingency expired and the seller wants the $15,000 earnest money. Lisa had not calendared the deadline. The buyer asks Lisa to "just tell them we had a commitment."
1. What did Lisa fail to do, and what is the consequence of the late notice?
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Lisa failed to calendar the 30-day financing contingency deadline and to ensure written notice was delivered timely. The contract says time is of the essence and requires written notice if financing is not obtained. The late voicemail on day 32 may be treated as untimely, which could put the buyer in breach and expose the earnest money. The exact consequence depends on the contract language and whether the seller waived the deadline, so the parties' attorneys should interpret it. Lisa should not make that legal call herself.
2. Can the broker release the $15,000 earnest money to the seller on the seller's demand?
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No. Earnest money held by the broker is trust funds. The broker should not release it to either party without a written mutual release signed by buyer and seller, or a court order. A unilateral demand from the seller is not enough. The broker may hold the funds while the parties negotiate or litigate. Releasing to the seller could expose the broker to liability to the buyer.
3. What should Lisa do now, and can she tell the seller the buyer "had a commitment"?
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Lisa should promptly document the timeline, confirm the loan denial in writing, and recommend that the buyer and seller consult attorneys. She should seek a written mutual release or a negotiated extension or amendment if the parties agree. She must not tell the seller the buyer had a commitment if that is false. A false statement about financing would be a misrepresentation and could violate license law. Lisa can explain the buyer's position accurately and let the attorneys handle the contract dispute.