Must the seller pay VA loan costs if the contract falls through?

QUESTION: My seller is under contract to sell her property, but the contract unfortunately has fallen through because the buyer was unable to obtain a VA loan to purchase the property.  The contract was written using the Offer to Purchase and Contract (form 2-T) and the FHA/VA Financing Addendum (form 2A4-T).  The buyer agent is telling me that according to the wording of the FHA/VA Financing Addendum, the seller is responsible for paying the cost of a required wood-destroying insect inspection even though the contract has fallen through.  Is he right?

ANSWER: We think not.  It’s true the FHA/VA Financing Addendum states that the seller will agree to pay the cost of well/water, septic/sewer, and/or wood destroying insect inspections that the Department of Veterans Affairs VA may require to be performed at the seller’s expense.  However, the Addendum also specifically provides that the seller’s agreement to pay the cost of any such inspection is “subject to the limit set forth in Paragraph 8(i) of the Contract.”  Paragraph 8(i) is the paragraph where the seller agrees to pay certain buyer expenses.  Paragraph 8(i) begins with the following: “Seller shall pay at Settlement $_________________ toward any of Buyer’s expenses associated with the purchase of the Property…”  The words “At Settlement” are emphasized because we think they make it clear that the seller’s obligations under paragraph 8(i) arise only if there is in fact a Settlement.  Since the contract in question has fallen through, there will be no Settlement, and thus, no obligation on the seller’s part to pay the cost of the termite inspection.

Does our conclusion mean that nobody is obligated to pay the pest inspector?  We don’t think so.  In our view, the VA restriction on the buyer’s ability to pay the cost of the inspection is no longer relevant since the VA financing has fallen through, and thus, the buyer would not be constrained in paying the cost of the inspection, if ordered by the buyer or buyer’s agent.  On the other hand, in the unlikely event the seller or listing agent engaged the pest inspector, the seller would be liable to pay the cost of the inspection.  However, any such obligation would be based on the seller’s contract with the pest inspector rather than the seller’s contract with the buyer.

Release Date: 03/14/2017

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