FACTS:

During the escrow period, the buyer’s broker sent a text message to the listing broker, indicating that the buyer would not be able to qualify for a loan and would therefore be cancelling the contract. Shortly thereafter, the seller accepted another offer on the property and is in escrow with the second purchaser. Meanwhile, the original buyer has now obtained loan approval and desires to complete the transaction.

ISSUE:

Did the text message constitute a notice of cancellation pursuant to the unfulfilled loan contingency provision of the AAR’s Residential Resale Real Estate Purchase Contract (Purchase Contract)?

ANSWER:

The first issue is whether a text message may be deemed to constitute notice under the Purchase Contract. Section 8(m) states that: “unless otherwise provided, delivery of all notices and documentation required or permitted hereunder shall be in writing and deemed delivered and received when: (i) hand-delivered; (ii) sent via facsimile transmission; (iii) sent via electronic mail, if email addresses are provided here; or (iv) sent by recognized overnight courier service…” Notice by text message is not specifically recognized by the Purchase Contract. However, it is probable that a Court would enforce a notice of cancellation sent by text message, particularly if the recipient of the notice relies upon it. Courts have equitable powers and would likely conclude that the text was an effective communication even though not specifically allowed in the contract, because the seller relied on the text in deciding to move forward with another transaction.

The second issue is whether, assuming that the form of notice is deemed appropriate, the specific language of the notice is sufficient to cancel the Purchase Contract pursuant to Section 2(c). In order to cancel pursuant to this section, the notice must be a definite and unequivocal statement of the buyer’s failure “to obtain loan approval without PTD conditions.” A statement of the buyer’s potential inability to obtain loan approval, for example, may not be deemed a cancellation pursuant to Section 2(c). Ultimately, and again assuming that the form of notice is deemed sufficient, this will be a fact-specific inquiry.

The lesson to be learned from this scenario is the importance of using the Unfulfilled Loan Contingency Notice, and the need to communicate information in ways expressly set forth in the contract while making clear the parties’ specific intent.

Arizona REALTOR® Magazine – May 2014 | Contracts


About the Author

Michelle Lind

K. Michelle Lind, CEO of Arizona REALTORS®, is also an attorney, State Bar of Arizona board certified real estate specialist, and the author of Arizona Real Estate: A Professional’s Guide to Law and Practice.
Please note that this article is of a general nature and may not be updated or revised for accuracy as statutory or case law changes following the date of first publication. Further, this article reflects only the opinion of the author, is not intended as definitive legal advice and you should not act upon it without seeking independent legal counsel.