Real
Cases in Real Estate
is a weekly update on real estate law, with legal principles illustrated and
explained by lawsuits from around the country. The topics are wide-ranging for
appeal to a broad spectrum of readers including lawyers, homeowners, investors
and the general public. Andrea Lee Negroni, a Washington DC
attorney and legal writer with 25 years of experience in financial services and
mortgage law, contributes the case summaries.
Followers of
Real Cases in Real Estate will learn and be entertained by lawsuits
involving nuisance, trespass, zoning violations, deed restrictions, title
insurance, public utilities, mechanics liens, construction defects, adverse
possession, foreclosure and eviction, divorce and marital property rights,
tenants' rights, and more. Real Cases in Real Estate uncovers the
unpredictable, amusing, and sometimes outrageous disputes between next-door
neighbors, contractors and homeowners, condo boards and residents, real estate
brokers and homebuyers, and zoning administrators and developers.
Each fully
cited case summary highlights the essential law of the case and explains the
principal legal theories and concepts relevant to the outcome. Plain language
treatment makes Real Cases in Real Estate accessible to lawyers and
laymen alike.
Whether you
follow real estate law professionally or as a hobby, you'll find something new
and useful every week in Real Cases in Real Estate.
Updates
for the Week of February 8th, 2012
A home purchase
contract contingent on conventional financing requires the buyer to apply for
financing.
The Stackhouses made a contract to buy an $885,000 home in
Nebraska from a Todd Gaver, a builder. The contract was contingent on the
buyers' ability to obtain an $840,000 conventional mortgage loan. The couple
never applied for the loan and told the builder they weren't going to go
through with the purchase. When the builder kept their $45,000 earnest money
deposit, the Stackhouses sued him for its return.
The contract was fairly non-specific about the terms of the
conventional loan the buyer was to obtain. For example, the interest rate, term
of the loan and payment amount areas of the contract were left blank, as was
the time frame for the buyers to apply for the loan. However, the contract
identified five different choices for loans and the box for "conventional" loan
was ticked. The would-be buyers never applied for a conventional loan. The
appeals court observed that the term "conventional loan" was not defined in the
purchase contract, but nevertheless concluded there is a commonly understood
meaning for the term. "The term conventional financing is commonly known and understood
to mean long-term financing provided by a bank, savings and loan company,
mortgage company or similar organization that is in the business of loaning
money for housing purchases by consumers, and such loans are evidenced by a
promissory note and secured by a mortgage or deed of trust executed by the
buyers in favor of the lender."
At trial, Stackhouse said he didn't apply for mortgage financing
because an IPO he involved with didn't go through. He said the builder knew he
could not buy the home unless the IPO was successful. However, nothing in the
purchase contract mentioned the IPO. Stackhouse also claimed his application
for a loan was denied, but he produced no evidence that he'd ever applied for a
loan. Instead, he produced a letter from a business affiliate expressing regret
that a loan could not be made to him. The letter-writer was not in the business
of making home loans.
In Nebraska, a contract made contingent on financing imposes
on the buyer the obligation to use good faith, bona fide efforts and reasonable diligence to obtain the financing.
Or, as the court put it, "a purchaser in a land or house purchase contract that
is contingent upon obtaining financing has an implied obligation to seek or
apply for such financing before the lack of such financing excuses
nonperformance by the purchaser." The
buyer cannot simply fail to apply for a loan, seek to escape his obligations
under the contract and get a refund of his earnest money by claiming that no
financing is available.
Stackhouse v. Gaver,
801 NW 2d 260, 19 Neb. App. 117 (Neb. App. 2011) [enhanced version available to lexis.com subscribers].
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