Okay, I’m getting comments that it was obvious there was no inspection period in the previous post, “Can the Buyer cancel and receive a refund of the $1,000 earnest money?.” Well, I did search for an simple example from the Industry Partners Conference.

To be fair, it’s easy for me to see how a real estate agent could get confused and misinterpret the bank addendum (assuming they read it at all). The bank’s “as-is” clause could have been buried among pages and pages of intentionally obtuse bank legalese. In addition, I can see a real estate agent screwing up this way – they included the AAR “As-Is” Addendum (which includes an inspection period) with the offer and didn’t put it together that the “as-is” language in the bank addendum trumped the “as-is” language in the AAR “As-Is” Addendum.

So you got the last one. How about this case study from the Conference?

Your Buyer has accepted the Addendum from the REO bank and the Buyer’s contract clearly contains the loan contingency. On the AAR contract, the loan contingency continues through the Close of Escrow.

However, on this particular REO bank’s addendum, the loan contingency states:

” if the Addendum is contingent upon financing, the Buyer shall present proof, satisfactory to the Seller, of the Buyer’s prequalification for a mortgage loan in an amount and under terms sufficient for the Buyer to perform his obligations under the Addendum. The prequalification shall include, without limitation, a certification of prequalification (or a mortgage loan commitment) from a direct mortgage lender. The Buyer’s submission of proof of prequalification, satisfactory to the Seller, is a condition precedent to the Seller’s acceptance of the Addendum and failure of the Buyer to provide such proof prior to the Seller’s execution of the Addendum may nullify the Seller’s execution of the Addendum and render the Contract null and void. The Buyer shall complete and submit to
a mortgage lender an application for a mortgage loan containing the terms set forth in the Terms and Conditions section of this Addendum within three (3) calendar days of mutual acceptance of this Addendum. Buyer shall employ diligent efforts to obtain a mortgage loan commitment within fourteen (14) calendar days of mutual acceptance of this Addendum. If, despite the Buyer’s diligent efforts, the Buyer cannot obtain a mortgage loan commitment within such fourteen (14) calendar days, then either the Buyer or the Seller may terminate the Addendum by giving written notice to the other party, and this Addendum may be automatically terminated at the sole option of the Seller. In the event of termination by the Buyer, the Buyer’s notice to Seller must include a copy of the loan application, proof of the application date and a copy of the denial letter from the prospective lender. Earnest money is considered nonrefundable if Buyer chooses not to terminate within the (14) calendar days.”


WOW! What an addendum! It’s now three weeks into the contract with the Close of Escrow Date scheduled 10 days from now. The Buyer submits to escrow the ” Unfulfilled Loan Contingency” form and requests that the escrow be cancelled and his $5,000 earnest money be returned to him.

Let’s review the provisions of this Addendum

  1. The Buyer must submit proof satisfactory to the Seller ““ what would that consist of?
  2. The Buyer must submit all this PRIOR to the Seller’s acceptance of this form? How can that possibly be done. Then the Seller has the right to render the contract null and void.
  3. The loan contingency consists of this 3 day application notice and then the 14 day loan contingency.
  4. How many buyers would actually provide their loan application to the Seller? Well, that’s what the Buyer has agreed to do.
  5. As a general statement, if the Buyer has not obtained his loan within the 14 days, he will most likely lose his earnest money.

Did you get that one?

And remember, that quote was just one small part of the bank addendum, although, it was the part that likely caused the buyer to lose his earnest money.