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Law Educator, Esq.
Law Educator, Esq., Lawyer
Category: Real Estate Law
Satisfied Customers: 118809
Experience:  Licensed attorney practicing landlord-tenant, land use and other real estate law and litigation.
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I am looking to build a new home with a production builder.

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I am looking to build a new home with a production builder. The builder I am considering is requesting $37,000 in earnest money so I am trying to be extremely careful. Can you review my purchase agreement and let me know if this contains a contingency for finance and home inspection? I would like to understand the likely outcome in the following scenarios.
1. I have deposited the earnest money and during a home inspection a serious defect is discovered that the builder is not able to fix to the inspectors satisfaction. Can I cancel the agreement and have the earnest money returned to me.
2. I have deposited the earnest money and before closing my employment is terminated and I am no longer approved for a loan. Can I cancel the agreement and have the earnest money returned to me. Also would the builder be able to demand damages?
3. I have deposited the earnest money and before closing the builder enters bankruptcy or goes out of business. Can I cancel the agreement and have the earnest money returned to me.
If you have any other advice for me I would appreciate it, thanks.
Thank you for your question. I look forward to working with you to provide you the information you are seeking for educational purposes only.
Remember, earnest money is non-refundable unless cancellation is due to no fault of the buyer.
1) If there is a contingency clause for home inspection and there is a material defect found in the inspection that cannot be remedied, then legally this is no fault of your own and earnest money needs to be returned if the contract is canceled.
2) If you have a financing contingency and for whatever reason not caused by your own fault you cannot obtain such financing, again earnest money must be returned. The problem comes in if you are terminated for fault of your own doing, which then arguably would mean you caused yourself to not be able to obtain financing, the builder could fight to keep the earnest money claiming the failure of financing was caused by your own conduct.
3) If the builder goes bankrupt, that earnest money is supposed to be in a separate account and in that regard it is supposed to be returned, since the failure here would be the cause of the builder.
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Customer: replied 4 months ago.
Thanks your explanations help. It is not clear to me if the purchase agreement I have been provided contains a contingency clause for a homeowners inspection and financing. Can you review the attached document and tell me if and where I would find this information in my document.

Thank you for your reply.

In this contract I do not find a financing contingency or a inspection contingency addendum. The only contingency is a sale contingency (Contingent on Sale Addendum). You would need to ask for separate addendums for inspection (which are rare on new constructions) and a finance contingency addendum if you want them.

Please do not forget to leave positivefeedback by clicking on the 5 stars at the top of your page, as theexperts are not employees of the site and get no credit for spendingtime with customers unless they leave positive feedback. Thank you.

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