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September 26, 2017 • Stay Connected!
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QUESTION:  Broker writes an offer for buyer and includes a Form 22A (financing contingency), showing that buyer is putting 25% down and taking a conventional first loan. In buyer's offer, broker and buyer also include a Form 22AW, the form that creates a limited waiver of buyer's financing contingency. When seller agrees to buyer's offer, seller is informed of the type of loan that buyer will secure and agrees that buyer's financing contingency is waived except that buyer retains the protection of the low appraisal provision.
 
The only problem is that buyer will not and never intended to put 25% of buyer's own cash down. Rather, buyer intends, through some financing vehicle or another, to borrow nearly all of the purchase price. Buyer broker justifies this deception by arguing that buyer is not protected by a financing contingency so there is no harm done to the seller.
 
Is buyer broker correct? Is this practice acceptable?



ANSWER:  Under no circumstances is this practice acceptable. This practice is deceptive, fraudulent and a violation of the standard of care to which brokers are held when drafting a purchase agreement. This question is best answered with a question. Why would broker and buyer draft the buyer's offer in this manner, if buyer has no intention of putting 25% of buyer's non-contingent funds down? There is only one answer to this question. The answer is that the Form 22A creates an impression, albeit false, in seller's mind, that buyer is putting 25% down and taking a conventional loan for only 75% of the purchase price. That loan, with that significant down payment, is much easier to get than a minimal down loan or a combination of loans that together, total nearly the entire purchase price. Because buyer appears to be qualified for that loan, seller is more likely to choose buyer's offer over another offer and more likely to deal with buyer on other issues such as a lower earnest money.
 
In other words, the purpose of drafting the offer in this way is to deceive seller. The name of the legal claim that seller would have against this buyer is "fraudulent inducement." Buyer will have fraudulently induced seller to enter a purchase agreement by intentionally deceiving seller as to buyer's financial condition and intent. A fraudulent inducement claim is a claim for fraud and if seller is successful in this claim, then buyer would not be protected by any limitations created by the Forfeiture of Earnest Money provision in the Form 21. Seller could seek recovery of seller's actual damages or specific performance along with recovery of seller's attorney fees and costs.
 
As for the buyer broker who drafted this provision, in a court action, that broker would have to defend and prove that broker's actions in drafting this buyer's offer conformed to the standard of care of a lawyer. It would be difficult, at best, to find a lawyer who would testify that a prudent lawyer would draft a purchase offer with the intent to deceive a seller and even more difficult to find a judge or jury who would accept this explanation.
 
Drafting a buyer's offer, in this manner, should never happen.
 

 

The Legal Hotline Lawyer does not represent Washington REALTORS or its members. To browse through our database of past Q & A's, visit www.warealtor.org. Attorney Annie Fitzsimmons writes the Legal Hotline Question and Answer of the Week. Please submit questions to legalhotline@warealtor.org . 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 21, 2017  30-yr FRM  15-Yr FRM  5/1-Yr ARM
 Average Rates  3.83%  3.13%  3.17%
 Fees & Points  0.5
 0.5
 0.4
 Margin  N/A  N/A  2.74


 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
 0.5
 0.4
 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
 0.5
 0.4
 Margin  N/A  N/A  2.74





 
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