If we are unable to secure homeowners insurance, that meet fha standards prior to a closing date are we legally obligated to continue a home sales?

My husband and I were trying to purchase
a manufactured home via fha on some
property. After a 590 engineering
certificate, 290 inspection, 450
appraisal, a second appraisal because it
didnt appraise and was a flip home…we
were not able to insure the home meeting
fha standards. Meaning, after 4 days of
callimg over q0 insurance agencies, no
one would insure the home for the loan
value. I was told the equity was in the
property not the home and that the home
replacement cost was less than the
mortgage amount. So we could not secjre
proper insurance based on our agreement
with the mortgage company. We will never
be able to close becuase we cannot find
affordable insurance to meet fha
standards and the loan requirements for
the mortgage company. Now, my realtor is
saying they may not release our emd. Can
they do that? It is no fault of ours.

Asked on September 14, 2017 under Real Estate Law, Michigan


SJZ, Member, New York Bar / FreeAdvice Contributing Attorney

Answered 3 years ago | Contributor

It does not matter if it was no fault of yours; all that matters is whether it is the seller's fault. If the seller violates a contract or causes a deal to fall through, then he or she must return any deposits. However, if the seller is not at fault but the sale does not go through, the buyer does not get the deposit back, even if the buyer is blameless. The contract of sale is only between the seller and buyer, so only the actions of those two parties are considered; the buyer is contractually obligated to go through with the sale; and only the seller's breach (if there was one) lets the buyer out of that obligation. So since the seller did not cause you to be unable to close, you would not get the deposit back and are held liable for your failure to close.
The exception would be if the contract of sale had what is commonly called a "mortgage contingency" or "financing contingency"--that is, a term or provision stating if you cannot get the loan for *any* reason you can get your money back and get out of the contract without penalty so long as you made good faith efforts to get the loan and notified the seller of the failure to do so by a certain date. If there was such a provision, as long as you complied with it, you should get your money back.

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