Contracts
A Rhode Island buyer's offer contains a 'mortgage contingency.' The contingency expires without the buyer obtaining financing but the buyer does not formally exercise the contingency to cancel. What is the result?
AThe contract is automatically cancelled when the contingency expires
BThe buyer may lose the right to cancel under the contingency if they do not exercise it before expiration, potentially being in breach✓ Correct
CThe seller must extend the contingency period
DThe lender is held responsible for the buyer's loss
Explanation
A contingency must typically be exercised (invoked) by the deadline stated in the contract. If the buyer fails to invoke the contingency before it expires, they may lose the right to cancel and could be in breach if they do not proceed.
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Key Terms to Know
Contingency
A condition in a purchase contract that must be satisfied before the sale can proceed to closing.
Earnest MoneyA deposit made by the buyer when submitting a purchase offer, demonstrating serious intent and serving as consideration for the contract.
Option ContractA contract giving the buyer the right, but not the obligation, to purchase a property at a specified price within a specified time period.
Right of First RefusalA contractual right giving a party the opportunity to match any offer received before the owner can accept it from a third party.
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