Seller’s Right to Demand Evidence of Ability to Close: A Seller Protection

If a financing contingency has ended without a Buyer terminating, the GAR Conventional Finance Contingency VA and FHA exhibits all give the Seller the right to demand evidence confirming the Buyer has funds or a loan commitment to close.  After a demand by the Seller, the Buyer has 7 days to provide evidence of ability to close.  If the evidence is not provided, the Seller can notify the Buyer that the Buyer is in breach. The Buyer then has a 3-day cure period. Absent a cure, the Seller can terminate the contract.
 
This is an important protection for the Seller.  First, Sellers generally need to move.  Many are reluctant to start the moving process without assurance that the sale is moving forward. Second, the Seller really doesn’t have another way to protect himself if the buyer isn’t showing signs of progress toward closing.  In this extraordinary market, buyers do extraordinary things.  Holding a property off the market and risking a loss of earnest money is, unfortunately, a possibility.
 
Types of Evidence of Ability to Close

• A copy of a loan commitment from a lender with the type, amount and terms of the loan
• A confirmation letter from a lender dated after the binding date of the contract
• A letter from a trust, stock brokerage firm or other financial institution holding funds, stocks, bonds, or other assets on behalf of the Buyer
• A current account statement from a trust, stock brokerage form, or other financial institution confirming funds held on behalf of the Buyer

Regardless of the form of the evidence, the Seller must be satisfied that the funds, combined with a loan commitment, are sufficient. 
 
What if there is no Finance Contingency?
In this hot Seller’s market, buyers are waiving their right to a finance contingency.  Often, the finance contingency is still included with the contract, but with zero days in the finance contingency.  Therefore, the Seller’s right to demand evidence of ability to close and the right to terminate are in place.  However, if there is no finance contingency at all, it is important to include an All Cash Sale exhibit in the contract. The All Cash Sale exhibit includes a verification of funds by the Buyer and the right of the Seller to terminate if the Source of Funds evidence is not sufficient or timely.  Sometimes we see a simple Special Stipulation that the sale will be all cash, with neither a finance contingency nor an All Cash Sale exhibit included. Unless there is an anticipatory breach by the Buyer, the Seller has no way to terminate prior to closing day, if he is not satisfied that the Buyer has the funds to move forward.
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