The Story of the Condo Purchase that Fell Through

Several years ago I was working with a first-time home buyer who was looking extensively at condos in DC. She eventually found one in McLean Gardens which is a historic residential community in upper Northwest.

The condo was really cute and had also been renovated, so I was thrilled when her offer had been accepted. The settlement date was listed 30 days from the date of the offer.

About three days before settlement I received a call from her loan officer. He apologized profusely and said that he wasn't able to proceed with the loan! This is what happened:

While doing a title search, the settlement company discovered that a majority of the units in the building were owned by a single company. This is a red flag in the financial world. If that company gets into financial difficulty it ends up affecting all of the other owners in the building. For example, if the company files for bankruptcy, that means all of the units the company owns would be sold at a fire sale thus pulling down the value of the neighboring condos.

Luckily, my buyer had a financing contingency in place. This contingency basically states that if the lender is unable to issue a loan then the buyer can get out of the contract without penalty:

"Buyer may Deliver Notice declaring the Contract Void if Buyer receives a written rejection for the Specified Financing from Lender and Delivers a copy of the written rejection to Seller."

Because of the Financing Contingency, my client was able to get her earnest money deposit (EMD) back in-full. Phew!

Financing can also fall through for other reasons, for example, if there's a change in the buyer's employment, and they lose their job. There were instances of this during DOGE last year when buyers were under contract and suddenly their jobs were eliminated.

I've never had a Financing Contingency come into play since. But, I have had several clients waive using one when they've been in competitive situations. When they choose to waive the contingency I always discuss the ramifications with them because there's always a slight chance that it might be needed.