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JANUARY 29, 2019 • Stay Connected!
What happens in a Form 22A situation where the loan has been declined after proper application has been made and the Buyer wants to apply for a new loan to hopefully close within the contract terms. Does the Buyer need to give notice about the declination and does the Buyer need the Seller's prior approval to apply for a new loan at this point in order to not waive their 22A protection?
Buyer needs to get the required, Form 22A, paragraph 5 letter from buyer's lender that declined the loan. The letter needs to satisfy all the requirements for return of the EM to buyer. So long as buyer has that letter, buyer is entitled to recovery of the EM. If there is additional time remaining before the closing date and buyer can attempt to obtain a loan from another lender, buyer is free to do that. Buyer has already satisfied the requirements of the Financing Contingency and is entitled to recovery of the EM. If seller and listing broker do not utilize the benefits of Form 22A, paragraphs 2 and 3, to stay abreast of buyer's efforts and deliver a timely Notice of Right to Terminate, that is seller's and listing broker's decision. So far, this is the easy part of this answer.
The more difficult part, and the part that the Hotline lawyer cannot answer with clarity, is whether buyer's broker has a duty to disclose the loan declination to seller. Buyer's broker has a duty "To disclose all existing material facts known by the broker and not apparent or readily ascertainable to a party..." (RCW 18.86.030(1)(d).)
"'Material fact' means information that substantially adversely affects the value of the property or a party's ability to perform its obligations in a real estate transaction, or operates to materially impair or defeat the purpose of the transaction ...." (RCW 18.86.010(9).)
Whether buyer's broker must disclose the first loan declination is a question of fact that every broker must consider for him/herself on a case by case basis. Broker should seek the advice of his managing broker in thinking through this issue. Issues to consider include: Is the loan declination a Material Fact? Is the question of "Material Fact" impacted by the likelihood of buyer getting financing in the time remaining prior to closing? Why was the first loan application declined? What is the prognosis from the new lender? If the loan declination is a material fact, is it readily ascertainable by seller in light of the privileges extended to seller through Form 22A, paragraph 2? Does buyer broker have a duty to disclose information to seller that seller could discover if seller exercised the rights given to seller by the terms of the Financing Contingency? How is all of this impacted by buyer broker's duty of loyalty to buyer, a duty that prohibits broker from taking any action that is adverse or detrimental to buyer's interests in the transaction?
There is not a one-size-fits-all answer to any of these questions that broker and managing broker must consider. If broker and managing broker cannot determine their disclosure obligations in this situation, they should consult legal counsel. The competing interests involved in this analysis can be difficult to reconcile and the consequences of making the wrong determination can be significant.
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 email@example.com or leave a message at 800.562.6027. Please include your NRDS number.
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