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Will I lose my earnest and any additional money for a real estate purchase? Mortgage contingency and bank appraisal.

Minneapolis, MN |

I didn't have an appraisal in my addendum but my bank had this in their approval letter:
My loan pre-approval states 'Subject to the approval of at least: $240,000.
Here is the relevant purchase agreement and addendum:
The Mortgage Contingency states: If the buyer cannot secure the financing specified in this Purchase Agreement, and this Purchase Agreement does not close on the closing date specified, this Purchase Agreement is canceled. Buyer and Seller shall immediate sign a Cancellation of Purchase Agreement confirming said cancellation and directing all earnest money to be refunded to the Buyer.

Attorney Answers 3


  1. I am not sure I follow what you are asking. In most cases it would be in your best interests to have the contract reviewed by an attorney. If you can not obtain financing because the bank does not believe the value of the property supports the requested mortgage amount and you cannot obtain financing, then the purchase agreement can be cancelled and the earnest money refunded, though you may be responsible for any fees charged by your bank related to obtaining the mortgage. This will depend on the loan origination agreement with the bank.

    The information that I am providing is general information based on my understanding of your question. You cannot and should not rely on this general advice in making legal decisions. There may be important information that you did not include in your question that could drastically change the advice an attorney that was fully informed would give you. I am not your attorney. My response does not create an attorney client relationship.


  2. You cannot really "agree" to "agree", so the provision about signing the cancellation agreement is neither enforceable, nor necessary, although it might help to establish the intent of the parties. As matter of general common law, and pursuant to other clauses which are likely in the contract, there is possibly an explicit, or implied, obligation on the part of the purchaser to make a good faith application to a bank for a loan. If you have not made a good faith application, the other side may have an argument for keeping the earnest money. It is important, therefore, that if you are in process of applying, that you provide all the paperwork the bank requires. You will need a letter of rejection from the bank, saying that you fully submitted your application, and the bank turned you down because of the numbers to be well covered here. That having been said, you need to talk to a Minnesota real property attorney to determine the existence and/or extent of the aforementioned possible obligation of good faith.


  3. I think you answered your own question... you get your earnest money back because "If the buyer cannot secure the financing specified in this Purchase Agreement, and this Purchase Agreement does not close on the closing date specified, this Purchase Agreement is canceled. Buyer and Seller shall immediate sign a Cancellation of Purchase Agreement confirming said cancellation and directing all earnest money to be refunded to the Buyer."

    I am an Attorney-at-Law, licensed to practice law only in the state of California. Unless we have both signed a formal retainer agreement, you are not my client, and my discussion of issues does not constitute legal advice. Opinions expressed herein are those of the author, and do not necessarily represent the opinions of those who hold other opinions.

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