Contingencies

Section: Contingencies Estimated study time: 45 minutes Content: A contingency is a condition in a real estate contract that must be satisfied (or waived) for the contract to become fully binding or for the sale to close. If a contingency is not satisfied, the party protected by it generally has the right to terminate the contract and recover the earnest money deposit. Massachusetts Purchase and Sale Agreements commonly include several standard contingencies. The three most important are: (1) the mortgage (financing) contingency; (2) the inspection contingency; and (3) in some transactions, a sale contingency. All contingencies have specific deadlines; failure to satisfy or waive a contingency by the deadline generally results in either the contingency being waived automatically or the protected party losing their right to invoke it. The mortgage contingency is the most commonly litigated contingency in Massachusetts. It typically provides that the buyer's obligation to close is contingent upon obtaining a written mortgage commitment for a specified loan amount at specified terms (interest rate, loan type) within a specified number of days from the P&S date. The buyer must make a diligent good-faith effort to obtain financing — simply not applying is not a valid exercise of the contingency. If the buyer cannot obtain the specified financing after a diligent effort, the buyer may terminate the contract and recover the deposit. If the buyer receives a mortgage commitment but later the lender revokes it (e.g., due to a title problem or a change in the borrower's financial status), the situation may not be covered by the contingency depending on the specific language. The inspection contingency gives the buyer the right to conduct professional inspections — building/home inspection,…