A “NOT TO EXCEED” INTEREST RATE MUST BE SET FORTH IN THE PRE-QUALIFICATION FORM OR LOAN STATUS UPDATE FOR THE FINANCING CONTINGENCY TO OPERATE AS INTENDED BY THE BUYER
The buyer and seller executed an Arizona REALTORS® Residential Resale Purchase Contract (the “Contract.”) In connection with the offer, the buyer provided a Pre-Qualification Form but there was no interest rate inserted on line 23. The buyer then provided a Loan Status Update, which also did not contain an interest rate. A week before the scheduled close of escrow the buyer delivered to the seller an Unfulfilled Loan Contingency Notice indicating that the interest rate on the loan anticipated was no longer available, purporting to cancel the Contract and demanding the return of his earnest money. The seller objected, claiming the buyer could not cancel based on the fact that the rate was not identified in the Pre-Qualification Form nor Loan Status Update.
May the buyer cancel because the interest rate was not what he anticipated?
Pursuant to Section 2b of the Contract, the Pre-Qualification Form and/or Loan Status Update set forth the specifics of the financing contingency. The lack of a “not to exceed” interest rate in both forms places the buyer’s loan contingency in question. If the buyer still qualifies for a loan but the rate is higher than expected, the buyer is not entitled to cancel the contract based on the financing contingency because there was no rate identified in the Pre-Qualification Form or Loan Status Update.