Is it safe to remove the financing contingency from contract if there's still an inspection contingency?

Question

Hi, I have a seller who wants me to remove the financing contingency from the contract.  I still have an inspection and "approval of partners" contingency.  Will that suffice for CYA?

Thanks!

Ryan Dossey · Answer

Tell the seller that you utilize investors and private lenders. That explains how you can pay cash but still need to "secure" financing. I would explain that not relying on banks allows you to buy properties a bank won't/can't lend on. It also allows you to pay cash.

Offer to increase your E.M.D to prove that you are serious. Let them know you have a ________% success rate so they have nothing to worry about. If they need a reference or two provide them with one.

Bill Gulley · Answer

Because a partner's approval can not be unreasonably denied, not a good tactic if you get sued and everything in a contract needs to be first class, needs to hold up in front of a judge, otherwise, why have good contracts.

The financing contingency is the strongest one you have, it is customary, it's been tested in courts, it allows a lender to say no for many reasons, if it has a bad inspection it needs to be fixed or they don't lend! What about the appraisal? A seller may know it's a high price, it won't appraise out, knocking out the financing contingency means it won't matter what it might appraise at.

And, inspection by whom? You, your "partner" you had the opportunity to see it, anything significantly different? You may need to give and show good reason, you can't say, ahhh, today that doesn't meet my needs. You'll need significant changes of condition from your contracting time to be successful. Inspection by some home inspector? So what if it needs a water heater in 6 months, that cost compared to a sale price agreed to may then become a factor too, judge might say buy it for $500 less and pay $2,000 to the attorney and $100 in court costs!

No, keep the financing contingency and let the lender run interference for you! Realtors, sellers and most attorneys won't argue with a lender.

If you just tell a lender you don't want the place and are unhappy with it, do you think that lender will force you to take a loan you don't want? They will usually find a reason not to make that loan and no one will say anything. The old wink and nod....  ;)

Brian Huber · Answer

Bill Gulley definitely makes sense.  I appreciate everyone's input.  If the seller walks, because of the financing contingency, it is what it is. I will do my best to explain the reasoning behind it.

David Avetisyan · Answer

I would remove the inspection, before the finance contingency.

James Enright · Answer

@ Bill G.  What if the investor says that "I buy houses for cash". Then what kind of contingencies do you add to your contract to get out of contract? Do you still say"approval of financing contingency from bank" in the contract even though you don't plan on using one?

Richard C. · Answer

Sure.  But that is just a generic "I reserve the right to opt out at any time."  I sure wouldn't give it a lot of weight if I were a seller.

Brian Huber · Answer

@Richard C. I see your point about "partner" and the legal definition.  What about "advisors"? I have an attorney who advises me.  So if my advisor does approve, wouldn't that work?

Jesse T. · Answer

How fast can you close?  Maybe an early closing date will put them more at ease that your financing is solid.

It can be risky to rely on an inspection contingency to get out of a contract for other reasons.  If the inspection comes back with very minor defects and they agree to fix them with licensed contractors in a week or less, it would be pretty hard to get out of the deal.

I am a little surprised they accepted an "approval of partners" contingency, if they are fully on board, maybe offer to remove that one.  Another option might be to increase your earnest money.

Richard C. · Answer

Approval of partners is valueless unless you have an actual partnership, registered with the state.  This is one of the most foolish innovations of the wholesaling gurus.  The word "partner" is a legal term of art; when used in a legal document it MEANS something.  Your wife, girlfriend, potential buyer and imaginary friend are not partners.

Inspection probably does it, as long as you actually conduct one.

Is it safe to remove the financing contingency from contract if there's still an inspection contingency?

Most Popular Reply