Can seller sue for earnest money plus 5 if buyer does not qualify for mortgage?

We the buyer were in a contract to buy a home in Oklahoma. We were denied
financing from the lender and notified the seller on the intended closing date.
The sellers are refusing to release the earnest money to us and informed us they
will sue us for an additional 9250 if we don’t forfeit the earnest money to
them. There is a mortgage contingency clause in the contract. They refuse to go
to mediation which is stated as the remedy for contract disputes. Can we force
them to mediation and are we obligated to forfeit our earnest money?

Asked on September 1, 2017 under Real Estate Law, Oklahoma

Answers:

SJZ, Member, New York Bar / FreeAdvice Contributing Attorney

Answered 3 years ago | Contributor

The issue is the mortgage contingency clause: are you in compliance with it? If you are (e.g. if you notified them of the failure to qualify a mortgage within the time frame indicated in the contract), then they have to return the earnest money: the contract requires it.
However, if you failed to comply with the requirements of the clause--for example, if it required (as they commonly do) you to notify the seller that you could not get a mortgage by a certain date, but you did not do so until later or after that date--then they can absolutely keep the earnest money or deposit. A buyer who does not or or cannot go through the sale *only* gets the earnest money back if they comply with the terms of a contractual provision letting them get their money back (or if the seller first breached, or violated, the contract in a material, or important, way, or committed fraud by lying about something which the buyer relied on it signing the contract).
Note that the closing date is almost certainly too late to exercise the buyer's rights under a mortgage or financing contingency: I have *never* seen a mortgage/financing contingency exercisable up to closing. Generally, it needs to be exercised within a month or two of the date of the contract, and prior to closing.
If the seller can prove that they incurred losses (e.g. expenses from the failed sale; or carrying costs from having to "carry" the property for several more months due the failed sale) in excess of the deposit, they could seek those additional amounts, unless the terms of the contract limit them to the deposit.


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