Mortgage Denied Due to Low Appraisal

A: Many, but not all, real estate contracts include a provision allowing some time for a buyer to obtain financing for the purchase of a home. If within the time allotted a buyer is unable to obtain financing and the seller is notified, the contract is terminated and the buyer receives a full return of any deposit.
 

In this situation, the buyer doesn’t lose any money and the seller has only lost the marketing time between the date of contract and the cancellation of the contract.

Usually, this right to terminate a contract if you are unable to obtain financing is called a mortgage contingency. But there are different types of mortgage contingencies. Some of these contingencies only provide that you can cancel the contract if your application is rejected while others specifically state that you have a right to terminate if you are unable to get a certain loan on certain terms.

In your case it may be an important distinction. If you are unable to get the loan amount you applied for because of the low appraisal, you should be able to terminate the contract. However, if you are able to obtain the financing you applied for even though the appraisal was lower than the purchase price, you may still have to buy the home at the original selling price.

You should consult a real estate attorney on these issues. Also, if you do have the right to terminate the contract and have notified the seller of your termination within the time provided, the seller may approach you and try to renegotiate the purchase price in order to sell the home.

At that point, it’s up to you and the seller to agree on the new sales price. Once the contract has been terminated, you will have the right to demand the return of your earnest money.

Keep in mind that you must comply with each of the contract terms in order to terminate the contract and get your money back. If you renegotiate the purchase price with the seller, you will have to sign an amendment to the contract setting forth the new lower purchase price.

Samuel J. Tamkin is a Chicago-based real estate attorney. Ilyce R. Glink’s latest book is 50 Simple Steps You Can Take To Sell Your Home Faster and For More Money In Any Market. If you have questions for them, write: Real Estate Matters Syndicate, PO Box 366, Glencoe, IL 60022 or contact them through Ilyce’s website www.thinkglink.com