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September 19, 2017 • Stay Connected!
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QUESTION:  Buyer is purchasing an expensive property and completes the Form 22A to say that buyer is putting 20% (or even more) down. In reality, buyer is putting down only a small amount of their own cash (non-contingent funds), maybe 5-15%, and buyer is taking a conforming, conventional loan as well as a second loan, both secured by the purchased property. The second loan will make up the difference between the small down that the buyer is making from non-contingent funds and the 20% or more that buyer indicated buyer was putting down on the Form 22A. On paper, buyer is taking a conventional first with 20% or more down. In reality, however, much of the down payment is coming from the second loan that buyer is also taking. Is buyer's Form 22A statement that buyer is putting down 20% an adequate disclosure/representation of what buyer is actually doing? Buyer makes no other disclosures regarding the structure of the loans or reliance on contingent funds.

ANSWER:  No. To answer this question, broker must recall that Form 21, paragraph a, includes a representation from buyer that buyer is NOT relying on a contingent source of funds unless reliance on that contingent source of funds is disclosed in the purchase agreement. When that boiler plate language is combined with buyer's Form 22A statement, buyer represents to seller that buyer is putting 20% (or more) of the purchase price down from buyer's cash resources (non-contingent funds) and financing only 80% of the purchase price. In this situation, that is not a true statement.
In reality, buyer is financing anywhere from 85 to 95% of the purchase price because buyer is taking the first and the second. Buyer may be using funds from the second to "put down" towards the first, but those funds taken from the second loan are also borrowed funds and thus, they are contingent funds. Buyer must disclose that buyer is borrowing the funds covered by the first AND that buyer is borrowing the funds covered by the second. Otherwise, buyer commits fraud at worst and misrepresentation at best. If buyer only misrepresents buyer's financial condition and is unable to close, and if buyer is protected by the forfeiture of earnest money provision, then buyer will forfeit the earnest money. But, if a court finds that buyer knowingly deceived seller as to the amount buyer was borrowing, then buyer may be found liable for fraud in which case, the forfeiture of EM provision will not protect buyer and seller will be able to sue buyer for specific performance and/or actual damages along with attorney fees and costs.
When buyer's broker drafts buyer's offer knowing that buyer is actually relying on contingent funds for 85-95% of the purchase price but drafts buyer's offer to deceive seller into believing that buyer is relying on contingent funds for only 80% of the purchase price, then broker commits legal malpractice. Recall that a broker, when drafting a purchase agreement, using the statewide forms, is engaged in the authorized practice of law but is held to the standard of care of a lawyer. A court will be unhappy with the broker, held to the standard of care of a lawyer, who either fails to properly educate the buyer as to the correct way to complete the blanks in Form 22A or participates in an intentional deception of seller.
The Form 22A should be drafted to show the down payment as the amount of non-contingent, cash funds that buyer is actually putting down and the fact that buyer is taking a first and a second loan. If buyer does not want to make the transaction contingent on buyer obtaining both a first and a second loan, then buyer could identify only the first loan on Form 22A and indicate that buyer is putting down the larger amount but in that case, buyer must also include a Form 22EF showing that the bulk of buyer's "down payment" is coming from a contingent source of funds ... a second loan, secured by seller's property.


The Legal Hotline Lawyer does not represent Washington REALTORS or its members. To browse through our database of past Q & A's, visit Attorney Annie Fitzsimmons writes the Legal Hotline Question and Answer of the Week. Please submit questions to . Please tell us your NRDS number when you e-mail the Hotline with your question.

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Primary Mortgage Rates Survey
(updated every Thursday)  Source:  Freddie Mac
 September 14, 2017  30-yr FRM  15-Yr FRM  5/1-Yr ARM
 Average Rates  3.78%  3.08%  3.13%
 Fees & Points  0.5
 Margin  N/A  N/A  2.74

 September 7, 2017  30-yr FRM  15-Yr FRM  5/1-Yr ARM
 Average Rates  3.78%  3.08%  3.15%
 Fees & Points  0.5
 Margin  N/A  N/A  2.74

 August 31, 2017  30-yr FRM  15-Yr FRM  5/1-Yr ARM
 Average Rates  3.82%  3.12%  3.14%
 Fees & Points  0.5
 Margin  N/A  N/A  2.74

 August 24, 2017  30-yr FRM  15-Yr FRM  5/1-Yr ARM
 Average Rates  3.86%  3.16%  3.17%
 Fees & Points  0.5
 Margin  N/A  N/A  2.74

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