Three situations (contingencies) allow a home buyer to cancel the contract and recover their escrowed Good Faith (Earnest) money. These conditions are: home needs repairs, appraisal value is lower than the accepted offer price, and the inability to receive a mortgage loan approval.
If the buyer is planning to finance the purchase of a home, then the contract will list the conditions that must be met in order for the buyer to avoid defaulting and losing their escrowed Good Faith money.
The standard Florida Realtor’s purchase contract has a couple of critical dates that must be watched. The first is the deadline date to submit a loan application. If left blank, the default date is 5 days after the Effective Date (the date a fully executed contract has been signed and delivered to all participants.) If the buyer has not applied within this time period, the seller may be able to cancel the contract and be awarded the buyer’s Good Faith money.
The second date that needs tracking is the Loan Approval date. The default date, if this field is left blank, is 30 days after the Effective Date. If the loan has not been approved by this date AND THE BUYER HAS USED “GOOD FAITH AND DILIGENT EFFORT,” the buyer can cancel the contract and receive their escrowed funds. The standard contract states that diligent effort includes the buyer’s cooperation with the mortgage lender in providing documents and paying fees in a timely manner. If the seller has reason to believe that the buyer wasn’t diligent, then the escrow might not be released, and the case might end up as a lawsuit with each party claiming the right to the Good Faith money.
Furthermore, if the buyer fails to notify the seller of their failure to obtain a loan approval within the allowable time period, the financing contingency is no longer in effect, and the buyer must continue with the transaction unless the seller agrees to cancel the contract within 3 days after the Loan Approval date.
I hope it’s clear after reading this that buyers and sellers MUST PAY CLOSE ATTENTION TO THE FINANCING DEADLINES in the contract.