Daily Development for Friday, February 17, 2006
by: Patrick A. Randolph, Jr.
Elmer F. Pierson Professor of Law
UMKC School of Law
Of Counsel: Blackwell Sanders Peper Martin
Kansas City, Missouri

for good measure, I’ve thrown in at the end a couple of blurbs about a more fact specific case from Maryland involving similar issues.

VENDOR/PURCHASER; CONTINGENCIES; FINANCING:   A mortgage commitment that requires the applicant to sell an existing home is not a "firm" commitment and if a contract's mortgage contingency provision (expressly or implicitly) is based on the buyer’s obtaining a "firm," commitment it has not been satisfied. 

Davis v. Strazza, 380 N.J. Super. 476, 882 A.2d 980 (App. Div. 2005)

A residential real estate contract provided, in pertinent part, that: "[t]his agreement is contingent upon the purchaser obtaining a conventional mortgage at a prevailing rate of interest for 30 years with monthly payments based upon a 30 year payment schedule.  The purchaser agrees to make immediate written application for such financing and to pay applicable original fees or points.  If a written mortgage commitment is not received in thirty (30) days, or any agreed upon extensions, either party may cancel this contract." 

The buyer applied for mortgage financing and received a written commitment subject to a number of terms.  One required that the buyer verify "the funds available for closing and provide an executed HUD-1, or equivalent closing statement, respecting the sale of any property that is a source of such funds."  One of the buyers owned a house, and the other buyer owned another.  The sale of both properties was needed to provide the closing funds.  Although the court’s opinion isn’t completely clear on the point, it seems that both properties were in negotiation at the time of the mortgage commitment, but later fell out of contract.  About six weeks after the lender issued the commitment, it advised the buyers, by letter, "that the mortgage commitment was cancelled because it was unable to verify account balances [due to the fact that the properties in question had not been sold].  The buyers sought return of their deposit but the seller refused.

A complicating factor was the fact that sellers were not aware of the “sale of home” contingency in the original commitment.  Sale of these properties was apparently not a contingency in the sale agreement.  Both sides were represented by counsel, but buyer’s counsel had faxed to seller’s counsel only the first page of the mortgage commitment, referring to conditions in an ‘attached rider.”  The rider had three pages of conditions, including that the buyer’s existing properties be sold within a set time.  Sellers were unaware of that.  They sued buyers’ counsel for fraud (later amended to negligence) and sued their own counsel for malpractice (which they settled.) 

The trial court awarded summary judgment in favor of the buyers, but the case went to trial on the negligence claim against buyers’ attorney.  The jury found that buyers’ attorney’s negligence caused them 10% of their damages and awarded them that amount.  Sellers appealed the award of summary judgment to the buyers  and the court here affirmed. 

According to prior case law, where a buyer "[has] not obtained a firm commitment for a mortgage loan, [it is] entitled to cancel the contract and a return of [its] deposit."  The principle is that "if a mortgage commitment includes conditions over which the borrowers have no control, the commitment is less than 'firm.' ... A contract requiring buyers to obtain a "firm commitment 'is one in which the buyers intend to be bound' only if they could secure a mortgage commitment with contingencies they had the power to fulfill.'" 

The court, without saying so, apparently concluded that the contingency here required a “firm” commitment, although the word “firm” appeared in the contingency clauses in the authority on which the court relied.  The court’s conclusion meant that the contract for this particular real estate transaction "was expressly contingent upon [the buyers] obtaining mortgage financing.  The agreement required [the buyers] to immediately apply for the mortgage.  It also provided that either the buyers or the sellers could cancel the contract if a written mortgage commitment was not received within 30 days of the signing of the agreement.

The seller noted that the buyers did not exercise their right to withdraw within the thirty days provided for obtaining the commitment.   The Appellate Division disagreed that this was a requirement in the clause,  finding that "the contract gave the parties the right to terminate in the event the buyers did not obtain their mortgage commitment within 30 days of the date of the agreement.  Although [the buyers] received a mortgage commitment within the required time frame, the commitment was subject to a contingency that plainly was beyond their sole ability to fill."  Most importantly, "the contract did not expressly require that [the buyer cancel the agreement] within the 30-day period for obtaining a commitment."  The Appellate Division was "convinced that such a conclusion accord[ed] with the apparent intention of the parties to [the] agreement."

Comment 1:   New Jersey lawyers have been telling DIRT repeatedly that the New Jersey custom of using lawyers to close residential transactions avoids problems and protects the parties.  Well, New Jersey lawyers - what the heck happened here?? 

First, the parties apparently operated under a contract which the court interprets as completely open ended as to when the buyers could withdraw many weeks after they knew of the facts permitting such withdrawal.  This is an unsatisfactory outcome and either results from poor interpretation by the courts or poor drafting by the lawyers, or both.

Second, the sellers also had the right to withdraw if the necessary commitment had not been received, but they were not informed of the conditional nature of the commitment.  We don’t know the terms of their settlement with their own lawyer, nor how much they knew about the buyers’ circumstances concerning the sale of their home, but the fact that they got some recovery from buyers’ counsel suggests that they didn’t know much.  The 10% finding is certainly curious.  When is it acceptable to transmit only one page of a four page conditional commitment? 

If, as may very well be the case, the sellers’ lawyer knew that the buyers had to sell their existing home to qualify, and knew as well that the sellers were not willing to accept the sale of the home as a contingency to the contract, sellers’ lawyer should have been alert to all the problems that arose here. 

If the sellers, and not their counsel, had to bear the cost of this appeal, there’s injustice here.  Let’s hope the settlement protected the sellers from their loss.

Comment 2: But let’s leave some blame for the court.  The court’s interpretation of the contract that the buyers could invoke the financing contingency  any time they wanted before closing is  nonsensical.   Under the facts, however, the buyers actually behaved more rationally than the court would have required, and they withdrew immediately upon being notified by their lender that it was no longer willing to wait for them to sell their other properties.  That might be a sensible accommodation of the problem for the parties, given the original commitment, but the sellers never had a chance to make such accommodation - they were apparently left in the dark.

Also see: Meyers v. Kayhoe, 2006 Westlaw 300447 (Md. App.  2/08/06) (Buyer’s statement to buyers’ own agent that “the loan is in place.  We’re good to go,” is not a waiver of buyers’ right to rely upon financing contingency when in fact buyer was lying- their application had been refused and there was no loan.  There was no evidence that agent transmitted that statement to sellers.  Further, buyers had no obligation apply to another lender, although evidence suggests that they may have qualified with another lender.  Contract stated that “Buyer agrees to make written application [for financing] withhin five days . . . ].  Such requirement is satisfied by one application, as it is reasonable to read in the article “a” before before “written application.  Court notes that the language of the contract is dispositive, and cites, but refuses to apply, cases where there is only a good faith obligation to seek financing and buyer was held responsible to make more than one application.

VENDOR/PURCHASER; CONTINGENCIES; FINANCING: Where loan requires that buyers’ make “written application” within five days of signing contract for financing to fulfill financing contingency in contract, such duty is satisfied when buyers make only one such application, even though evidence shows that other lenders might have loaned the money.  Meyers v. Kayhoe, 2006 Westlaw 300447 (Md. App.  2/08/06)

The Court noted that the language of the contract was dispositive, and cited, but refused to apply, cases where there wasonly a good faith obligation to seek financing and buyer was held responsible to make more than one application. 

Comment: The case is correct.  There were only five days allowed  to make a loan application.  The buyers made one application in good faith to a lender with which they already were dealing.  The lender rejected the appraisal on the property to be purchased.  Brokers offered to help by introducing them to a broker related mortgage broker that might have been more generous, but they first rejection did not come until the original five days had expired.  This is quite normal.  With a five day window, it would be foolish to assume that the parties expected that more than only application would occur.  The older cases mentioned by the court likely do not involve the huge application fees and other problem commonly associated with modern loan applciations.

VENDOR/PURCHASER; CONTINGENCIES; FINANCING: Buyer does not waive financing contingency when, after lender had rejected the loan application, buyer tells buyer’s broker that “loan is in place” where there is no evidence that such comment was transmitted to sellers.  Meyers v. Kayhoe, 2006 Westlaw 300447 (Md. App.  2/08/06) 

Comment: A bizarre state of facts, of course.  Why would the buyer lie, especially when, later the buyer elected to stand on the financing clause?  But in this case the buyers’ were the beneficiaries of the new agency laws, which permitted them to look to the broker with whom they communicated as their own agent.  Not long ago, all brokers were agents or subagents of sellers. 

Items reported here and in the ABA publications
are for general information purposes only and
should not be relied upon in the course of
representation or in the forming of decisions in
legal matters.  The same is true of all
commentary provided by contributors to the DIRT
list.  Accuracy of data and opinions expressed
are the sole responsibility of the DIRT editor
and are in no sense the publication of the ABA.

Parties posting messages to DIRT are posting to a
source that is readily accessible by members of
the general public, and should take that fact
into account in evaluating confidentiality


DIRT is an internet discussion group for serious
real estate professionals. Message volume varies,
but commonly runs 5  15 messages per work day.

Daily Developments are posted every work day.  To
subscribe, send the message

subscribe Dirt [your name]



To cancel your subscription, send the message
signoff DIRT to the address:


for information on other commands, send the message
Help to the listserv address.

DIRT has an alternate, more extensive coverage that includes not only
commercial and general real estate matters but also focuses specifically upon
residential real estate matters.  Because real estate brokers generally find
this service more valuable, it is named “BrokerDIRT.”  But residential
specialist attorneys, title insurers, lenders and others interested in the
residential market will want to subscribe to this alternative list.  If you
subscribe to BrokerDIRT, it is not necessary also to subscribe to DIRT, as
BrokerDIRT carries all DIRT traffic in addition to the residential discussions.

To subscribe to BrokerDIRT, send the message

subscribe BrokerDIRT [your name]



To cancel your subscription to BrokerDIRT, send the message
signoff BrokerDIRT to the address:


DIRT is a service of the American Bar Association
Section on Real Property, Probate & Trust Law and
the University of Missouri, Kansas City, School
of Law.  Daily Developments are copyrighted by
Patrick A. Randolph, Jr., Professor of Law, UMKC
School of Law, but Professor Randolph grants
permission for copying or distribution of Daily
Developments for educational purposes, including
professional continuing education, provided that
no charge is imposed for such distribution and
that appropriate credit is given to Professor
Randolph, DIRT, and its sponsors.

DIRT has a WebPage at:


To be removed from this mailing list, please go to
or send an email message to the address listserv@listserv.umkc.edu,
with the text SIGNOFF BROKERDIRT in the body of the message. Problems
or questions should be directed to manager@listserv.umkc.edu.