Does a buyer’s decision to obtain a loan change the seller’s contractual obligations?

QUESTION:  I represent a wealthy buyer who is under contract to purchase a home. In paragraph 5(a) of the Offer to Purchase and Contract (Standard Form 2-T), the buyer checked the box representing that he intended to pay cash in order to purchase the property. In paragraph 8(i), the parties agreed that seller would pay $1,500.00 toward buyer’s expenses at Settlement. Prior to closing, my buyer client decided to finance a portion of the purchase price. When the seller found that out, he notified us that he would not honor his agreement to pay $1,500.00 of the buyer’s expenses. Does the buyer’s change of heart regarding financing relieve seller from any of his contractual obligations?

ANSWER:  No. The buyer’s decision to obtain financing despite his representation that he intended to pay cash is not a breach of contract and does not relieve the seller from his contractual obligations.

As stated in the Guidelines for Completing the Offer to Purchase and Contract: “Buyer Representations are statements of current facts that Seller may reasonably rely upon in deciding whether to enter into the Contract.” A Note in paragraph 5(a) advises sellers that if a buyer represents that he or she does not have to obtain a new loan in order to purchase the property, they should, prior to signing the offer, obtain documentation from buyer which demonstrates that buyer will be able to close on the purchase without the necessity of obtaining a loan.

In the facts you have described, there is no indication that, at the time the offer was submitted, the buyer in fact needed a new loan in order to purchase the property. If the buyer had sufficient liquid assets to purchase the property, the fact that he subsequently decided to obtain financing was perfectly permissible and did not violate any provision of the contract.

Sellers should recognize that a buyer’s representation that financing is not required is not the same thing as a warranty by the buyer that he or she will pay the purchase price in cash. Since a buyer’s decision to obtain financing is not a breach of contract, sellers will remain bound to all of their contractual obligations, including any obligation to pay a portion of the buyer’s expenses at Settlement.

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