Best of the Hotline: Two wrongs - who’s right?

By James L. Goldsmith, Esquire

Facts. A buyer and seller signed a standard residential agreement (ASR) requiring the buyer to make a mortgage application within seven days, but also giving them 10 days to complete a home inspection. The inspection, completed on day five, noted several problems. The buyer, over the next several days, mulled over the inspection report but ultimately decided to terminate the agreement. The notice of termination was sent to the seller and listing broker on day eight.

On day nine, the listing agent asked the buyer agent to verify that the buyers had applied for their mortgage. Not surprisingly, there was no verifying that which did not happen. Why would the buyer apply when the buyer was probably going to terminate the agreement and he did?

Q. Assuming that it is only the deposit at issue, who gets it, seller or buyer?

A. I am going to give you my answer, but first, allow me to pontificate (which is, by the way, much easier than answering a tough question). Problems like this are preventable. Buyers and sellers should understand the importance of punctual performance. (Remember our article on dating the agreement of sale?) Time is of the essence. Had this buyer made a completed mortgage application or, had the buyer terminated the agreement in writing before the end of day seven, there would be no problem. In either of those events, the buyer could rightfully claim his deposit.

While this narrative does not say so, it was likely that the buyer agent knew of the inspection results and also knew that the buyer was contemplating termination. If that was so, we would expect the buyer agent to make clear that the buyer should terminate or secure an extension of time for making application. Paying close attention to your transactions is a difficult standard to satisfy, but is a key to avoiding malpractice claims.

So enough of the should-haves, would-haves, could-haves; on to the answer. While a judge could go either way, I think the buyer will get the deposit. Failure to make a timely application IS a breach of the agreement of sale. The "time of the essence" provision means that a breach of timeliness, however so slight, is a breach of the agreement regardless of whether the other party suffered any consequence. But despite these doctrines that favor the seller, I still think the buyer will prevail.

The buyer had the right to terminate and did terminate the agreement within the time limit of the inspection contingency. And while I may be wrong and the court may find for the seller, judges try to avoid making decisions on technicalities and frequently are guided by "the equities" or fairness: "Would a reasonable buyer, not particularly knowledgeable about the home-buying process have applied for a mortgage while contemplating his right to terminate?"

Despite what I predict as the outcome, as a buyer agent, I would not gamble my clients' deposit and would insist that they do things within their time limitations. Please reread the last sentence.

Best to all.