Contract Contingencies

Notes from the Attorneys of the Massachusetts Association of REALTORS Legal Hotline

Q. In a recent transaction, my seller client accepted an offer with a mortgage contingency anda home sale contingency. However, my seller inserted a “kick out clause” where if she received another offer without a home sale contingency, the buyer had 48 hours to remove the home sale contingency My seller received a second offer which she was willing to accept and I notified the buyer that he needed to remove the contingency. The buyer agreed to remove it, but the mortgage contingency did not expire for another seven days. It is my understanding that the buyer will not be able to get a secure commitment if they have not sold their home. Can the buyer still withdraw if they cannot get a mortgage commitment in seven days?

A. Yes, the buyers can still withdraw within seven days if they cannot meet the mortgage contingency and meet all necessary notice requirements. REALTORS® need to be careful when dealing with “kick out clauses” or home sale contingencies. There are issues which can arise when dealing with these kinds of clauses. As is often the case, the buyers will agree to remove the home sale contingency clause but the mortgage contingency clause remains, it is likely that a lender will not give a binding loan commitment to the buyers unless they sell their house first, or at least have entered into a contract with a buyer to sell their home.

Most loan commitments contain certain restrictions; however some, like the sale of a home, are much more severe than others. Depending on how it is worded, the “kick out clause” may fail to provide the protections that the seller was seeking when they signed the offer to purchase.

If your seller is particularly nervous about a home sale contingency you can always suggest the buyer apply for a bridge loan. This is a short-term bridge loan, in which you basically borrow from your current home’s equity until you receive the proceeds from its sale, range from one day to six months. Any specific questions buyers or sellers have regarding specific clauses in their agreement should be referred to their personal attorney.