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The buyer and seller executed an Arizona REALTOR® Residential Resale Purchase Contract (the “Contract.”)  In connection with the offer, the buyer provided a Pre-Qualification Form which provided at line 13 that the buyer was going to obtain a conventional loan.  Five days after the contract was signed, the buyer delivered to the seller a Loan Status Update which provided on line 19 that the buyer was going to get an FHA loan to complete the transaction.  Ultimately, the buyer was unable to obtain the FHA financing and provided a written loan denial to the seller.  The buyer cancelled the Contract and demanded the return of the earnest money based on the failed financing contingency.  The seller objected, claiming that the buyer was obligated to obtain conventional financing per the Pre-Qualification Form, not FHA financing and that the failure to obtain FHA financing was therefore irrelevant.  


Which document governs if the Pre-Qualification Form and the Loan Status Update conflict?


See discussion.


The Contract provides at Section 2b that the terms of the financing contingency are established by the Pre-Qualification Form or the Loan Status Update, “whichever is delivered later.”  Section 2e further provides that a Loan Status Update must be delivered within 10 days of contract acceptance. Here, the Loan Status Update was timely as it was delivered five days after the Contract was accepted.  Consequently, the terms of the Loan Status Update (which was delivered “later” than the Pre-Qualification Form) control.  The buyer’s inability to obtain the FHA financing entitles her to cancel the Contract and receive the return of her earnest money.