I was notified 2 days prior to closing by buyers broker that buyer had cancelled loan application. Does this notification forfeit the earnest money? The day after closing was due to take place, I did receive a mortgage broker letter stating they were unable to fund, and mortgage broker states they did not cancel the loan. Is a mortgage broker statement considered the same as a lender letter per financing contract?
Assuming buyer had a Form 22A Financing Contingency and buyer wants to recover EM based on the contingency, buyer must provide a letter from buyer's lender. Buyer's mortgage broker can author and sign that letter. The letter must show: the date on which buyer made loan application (within five days following mutual acceptance), supported by the lender's disclosure; that buyer had sufficient funds to close the transaction; and the reason the funds were not made available by the lender. The reason funds were not available should support a good faith effort by buyer to obtain the loan. In other words, the lender letter is the important letter in buyer's effort to recover the EM. The broker's letter could help in understanding the lender's explanation for why funds were not available but if lender's explanation creates a clear excuse for buyer, based on buyer's good faith effort to obtain financing, that is probably sufficient for buyer to recover the EM.
Of course, the Hotline lawyer has not seen any of the letters at issue in this situation and has no knowledge of the parties. Thus, this answer is not intended to indicate that buyer should or should not recover the EM. Broker should advise her client to seek the advice of client's lawyer. Only the client's lawyer can assist the party in actually evaluating the substance of either letter against the buyer's Form 22A requirement for recovering the EM.
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The Legal Hotline Lawyer does not represent Washington REALTORS® or its members. The advice contained herein does not constitute legal counsel. Please consult with your managing broker for best practices.
THURSTON COUNTY REALTORS® ASSOCIATION