This just blows my mind!

Buyers denied loan, but still lose deposit

First, why would anyone put that much cash at risk as earnest money for a P&S agreement?  That is insane!  I usually only give a check for $500 with any offer I write. There’s really no reason to give more.  A contract can be made legally binding with as little as $1.  That's right, one dollar.  But this couple for some reason put down thirty-one thousand dollars!  Why?

I would love to know what realtor they were working with.  Then I’d make certain that realtor was NEVER involved with any of my transactions!  It is morally repugnant to even consider putting anyone in that kind of position.

And the whole thing would have been easily avoided with just a slight tweak to the wording of the contract.  The standard forms generally have a financing contingency clause.  But, as we can see in this case, it is not really strong enough if the sellers side want to be pricks about it.  Typically the clause will read something like this.

If Buyer cannot obtain financing within 30 days Buyer must notify Seller (in writing within 30 days of the date of this contract) of his election to cancel this contract. Failure to give notice of cancellation within such time period constitutes waiver of this financing contingency.

In the case of this couple they could have obtained financing if they had listed their current house for sale.  Since they were unwilling to do so the bank refused to give them the loan.  And the court decided that was a reasonable requirement and is letting the seller keep the deposit.  This could have been avoided by adding four powerful words to the clause:

If Buyer cannot obtain financing SUITABLE TO THE BUYER within 30 days Buyer must notify Seller (in writing within 30 days of the date of this contract) of his election to cancel this contract. Failure to give notice of cancellation within such time period constitutes waiver of this financing contingency.

That way, if the buyer does not want to sell their house and the bank is demanding it – that offer of a loan is “not suitable to the buyer” and the contingency remains in force.

If you just deal with the listing agent yourself, you need to understand that they have a fiduciary responsibility TO THE SELLER.  They are not your agent, they don’t work for you.  If you are not a real estate pro – work with one!  A buyer’s agent could have steered them away from this disaster.