Is the buyer obligated to buy the property even if they can't get a loan?
Release Date: February 15, 2018
John Wait, Martin & Gifford, PLLC
In the updated Offer to Purchase and Contract (Form 2-T), there is a new “Note” under paragraph
4(a) that says: “NOTE: Buyer’s obligation to purchase the Property is not contingent on obtaining a Loan.
Therefore, Buyer is advised to consult with Buyer’s lender prior to signing this offer to assure that the Due
Diligence Period allows sufficient time for the appraisal to be completed and for Buyer’s lender to provide
Buyer sufficient information to decide whether to proceed with or terminate the transaction.”
My buyer-client is very confused and worried about this note, because they cannot afford to buy the home
without a loan. So, in their eyes, the contract is contingent on their obtaining a loan. What does this note mean
and what should I tell them?
ANSWER: This note has been part of Form 2-T for many years. The reason it probably seems new is because
when the forms were updated last year, notes like this one were placed in a new bright blue box to help them
stand out better. Warnings were also placed in new bright red boxes to help alert consumers to important issues.
The purpose of the note under paragraph 4(a) is to make clear that the buyer is obligated to purchase the
property regardless of where the buyer obtains funds. As a legal matter, Form 2-T simply states that the seller
promises to sell and the buyer promises to buy on the conditions set forth in the contract. The note under
paragraph 4(a) means that the ability of a buyer to obtain a loan is not a condition of the contract that will
relieve the buyer of their promise to buy. In other words, the transaction will not automatically blow up just
because the buyer cannot obtain a loan. The transaction will proceed until the deal either terminates or closes.
All is not lost for your client, however. You should tell your buyer that the contract gives them the right to
terminate the transaction, without penalty, during the Due Diligence Period. If they are not confident that they
will be approved for a loan, they can terminate the transaction during that time and receive a refund of their
Earnest Money Deposit.
If your client has not already received preliminary loan approval, you should advise
them to ask for a Due Diligence Period that will allow them to complete the initial loan approval process. If,
following the end of the Due Diligence Period, the buyer is unable to complete the purchase because they can't
get a loan, they risk losing their Earnest Money Deposit since the contract does not contain a loan contingency.
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They are general statements of
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services of a private attorney should be sought for legal advice. © Copyright 2018. North Carolina Association of REALTORS®, Inc