Contingencies in Foreclosure Home Purchase Contracts
What is contingency in real estate purchase contract?
Contingencies limit your liability. They help you cancel your purchase contract if you made your offer contingent upon occurrence or non-occurrence of an event that was unknown to the parties when you signed your offer.
In addition to being able to cancel your purchase of foreclosure property, such contingency gives you a chance to negotiate the purchase price or ask for correction of a condition, if correctable, or get credit toward your closing costs. In short, you improve foreclosure purchase conditions to your favor.
Some contingencies may result in suspending the purchase contract and some contingencies may result in cancellation of the contract.
Specific contingencies in property purchase
- Financial contingency: You must get financing on the terms that you specify in the contract at the conditions you specified. You may cancel your purchase contract if you cannot get home mortgage loan or appraisal report shows valuation lower than that in purchase contract (see professional appraisal below).
- Home inspection contingency: This is the most typical contingency used. You buy the foreclosure after professional home inspector and termite/mold inspector prepares an inspection report. You may report any condition not listed in disclosure statement and negotiate foreclosure or cancel your offer.
- Legal contingency: Some states, including California allow buyers to decide not to within a certain period of time (currently, 17 days). It works like buyer’s remorse. You do not need to justify why you do not want to buy.
- Permit contingency.
- Governmental approval.
- Sale of other property. You may indicate in your offer that you will buy the property if you will be able to sell your other property. This contingency may work in buying real estate property from a private party but not with a government agency or bank selling it as foreclosure.
- Professional appraisal. If home appraisal indicates an appraised value that is lower than both parties agreed, then you may decline to buy it. Second, your lender will very likely not extend home mortgage loan that you expect. That is, your financial contingency may kick in.
- Eviction contingency: If foreclosed property is still occupied by owner, you may make your offer contingent upon vacated property. Bank or government must evict the owner to consummate the foreclosure sale.
Remember: all contingencies must be in writing and initialed by both parties.
Important note: This information is provided for informational purposes and does not constitute a tax or accounting advice. Please check with your tax accountant, CPA, and other professionals if you need a professional advice and see our Disclaimer.