Most people purchase Florida real estate by obtaining a mortgage loan for all or part of the purchase price, and take advantage of the financing contingency clause built into most standard contracts. This clause basically says that the buyer will try hard to get a home mortgage loan, and if they cannot get a home loan, they will be refunded their deposit. I've noticed that many buyers take this very casually, like the "Get Out of Jail Free" card in the Monopoly game. They assume that if they need to back out of the deal for any reason, all they need to do is find a mortgage lender that will deny their loan & get their deposit back.

In a recent Florida court case, Quirch vs. Coro, 28 FLW 680 (2003), the court had a different opinion. In this case, Mr. & Mrs. Buyer entered into a Florida real estate purchase contract with a financing contingency clause and a $60,000 escrow deposit. They got approved for a mortgage loan, but cancelled due to high closing costs. They applied with a different mortgage lender, and were again approved for their home loan. Several days later, Mr. Buyer became gravely ill. When the lender found out about the illness, they rescinded the loan commitment. The buyers advised the sellers that they could not satisfy the contract's financing contingency and asked for their deposit to be returned.

The sellers refused to authorize the return of the deposit and insisted that the buyers were obligated to proceed with the purchase contract, claiming that the first mortgage lender satisfied the contingency, and the buyers did demonstrate "due diligence and good faith" since they took no further action after the lender rescinded the mortgage loan commitment. The case went to court, and the trial court ruled in favor of the buyers.

The sellers filed an appeal, and the 3rd District Court of Appeal reversed the trial court's findings and ruled in favor of the seller, stating that the issue of due diligence and good faith was a question of fact and the that the buyers could not prove that they weren't able to obtain financing from another lender.

Often a seller will simply let the buyer back out and return their deposit, especially when homes are selling quickly, but don't let this give you a false sense of security. This case points out the fact that you should never count on the seller's generosity when you enter into a contract. Be sure you understand your contractual obligations before you sign. Your real estate agent should thoroughly explain the contract to you and answer all of your questions, but consult your attorney if you need legal advice.

~Dan Hoffman