Do we have any rights to get out ofa contract if we can’t get mortgage approval?

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Do we have any rights to get out ofa contract if we can’t get mortgage approval?

My husband and I are in contract to purchase a house. We went under contract 2 months ago. We were pre-approved but when it came to doing a formal loan application 2 separate mortgage companies denied us because my husband wrote-off too much on his past tax returns. We now have the mortgage lender and our agent telling us to file last years taxes without any write-off’s and then amend the taxes later on. I spoke with a tax attorney who advised us not to do this. We now want out of the contract and our agent is telling us that the owners of the house will sue.

Asked on January 12, 2012 under Real Estate Law, South Carolina

Answers:

SJZ, Member, New York Bar / FreeAdvice Contributing Attorney

Answered 9 years ago | Contributor

You could only get out of the contract for failure to obtain mortgage approval if the contract itself contained what's commonly called a "finance contingency." That means that if the contract contained a term or clause saying that if you could not get financing (after making a good faith effort to do so), you could then terminate the contract, in that case, you could get out of it. But without a financing contingency, the contract is binding and your failure to get financing does not allow you out of the contract; if you don't go through with the contract, the seller may indeed sue.


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