When negotiating a real estate contract, it is common for both sides to place measures known as “contingencies” into the contract, which are meant to protect against certain foreseeable problems. One common contingency is known as the mortgage contingency, which is meant to protect the seller from issues that might arise due to problems with the sale’s financing. But what exactly is a mortgage contingency, and how can it potentially protect you?
What is a Mortgage Contingency?
In simple terms, a mortgage contingency is a clause in a real estate contract that imposes a requirement on a buyer to get pre-approval on a mortgage before the sale can be completed. This means that the buyer must submit their financial documents to a bank or other mortgage lender and successfully get them to promise that they will issue a mortgage once the sale is ready to close. This ensures that the buyer will have the money to pay for the sale in advance.
How Does a Mortgage Contingency Work?
When you put a mortgage contingency into a real estate contract, you effectively make the buyer promise that they will get pre-approval for a mortgage before a certain date. If, for whatever reason, they are unable to get financing for the mortgage, the contingency allows the seller to cancel the sale without any penalty. The seller can then seek a new buyer, who hopefully will be able to obtain financing.
How Does a Mortgage Contingency Protect You?
A mortgage contingency is helpful for two major reasons. First and foremost, it ensures that the buyer will have the money to pay for the sale, and sorts out prospective buyers who may not have the means to pay for the mortgage. Second, mortgage lenders will conduct a credit check when someone seeks pre-approval for a mortgage, which can identify potential fraud or other issues that might cause problems later on.
What Should You Do?
Whether you are buying or selling a property, you should make sure to speak to a lawyer with experience handling real estate matters. They can go over the terms of your contract and ensure that it best suits your needs. The sooner you get in contact with us, the sooner we can get to work on your behalf.
For more than 50 years, the New York lawyers at Elovich and Adell have represented clients like you in real estate cases. Our attorneys, conveniently located in Long Beach, handle personal injury, real estate, commercial transactions, criminal defense, and labor and employment claims all across New York State. For a consultation, please call us at 516-432-6263 or visit our contact page for more information.
