April 3rd, 2017 at 5:17 pm
Answer: As to your first question, the answer is “Yes.” As background, let’s say a buyer offers $1 million with an $800,000 loan contingency and $200,000 down payment, but the seller counters at $1.1 million and the buyer accepts. Under that circumstance, paragraph 1B of the SCO states that the loan amount and down payment will be adjusted proportionally as with the buyer’s original offer. Hence, the buyer’s loan contingency will be for an $880,000 loan, and the down payment will be $220,000.
In your question, however, the buyers want to accept the $1.1 million purchase price, but they only have $200,000 as a down payment, not $220,000. If they want to be able to cancel and keep their deposit as long as they cannot obtain a $900,000 loan (not just $880,000), they should use a C.A.R. Buyer Counter Offer (Form BCO) to indicate that the loan contingency will be for $900,000.
As to your second question about a multiple offer situation, submitting a BCO for a $900,000 loan contingency could certainly cause the buyers to lose out on the property altogether. It’s up to them to decide whether they are willing to take the risk of accepting the seller’s SMCO, instead of writing a BCO. If they take on the risk, they can only cancel under their loan contingency if they cannot obtain an $880,000 loan, even if they really need a $900,000 loan. Furthermore, the Residential Purchase Agreement requires the buyers to have the down payment and closing costs (see paragraph 3J(2)), as well as proof of such funds (see paragraph 3H). So if they accept the seller’s SMCO, their failure to have $220,000 as their down payment will be a breach of the contract that entitles the seller to keep the buyers’ deposit. Of course, many buyers can get the additional funds by liquidating assets, borrowing against their 401K, or getting a gift or loan from their family. Yet, other buyers cannot. That’s the reason we have to let the buyers decide whether to accept the SMCO or counter.
-Thank you to Kalia Rork (Santa Barbara Office) for suggesting this week’s legal tip.
Copyright© 2017 Berkshire Hathaway HomeServices California Properties (BHHSCP). All rights reserved. Any unauthorized reproduction or use of this material is strictly prohibited. This information is believed to be accurate as of April 3, 2017. It is not intended as a substitute for legal advice in individual situations, and is not intended to nor does it create a standard of care for real estate professionals.
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