Buyer Terminated for Lack for Mortgage Commitment – Agent Malpractice?

By James L. Goldsmith, Esquire


It’s funny, but after suffering a market in which sellers had trouble giving away their homes, the Hotline is now getting calls about sellers who seek to get out of their agreements of sale. There have always been sellers, usually older, who come to grips with the reality of moving out of familiar homes only after signing an agreement. But why there is an increase in cold-footed sellers is beyond me.

This article focuses not on sellers with cold feet, but on the duty of a buyer agent to protect her clients from being ousted. Sellers who have cold feet will look for “legitimate” means to terminate their agreements as opposed to simply digging in and refusing to move without any basis. There are a few clauses that allow a seller to unilaterally end a contract and one is found in the mortgage contingency clause where the buyer is obligated to produce a mortgage commitment by a specific date.

One of the attorneys in my firm is defending a buyer agent who lost a deal because her buyers did not have a commitment by the terminal date for doing so. The buyers were distressed to lose the home and also unhappy about the money they paid to inspectors, appraisers and so. So they hired an attorney who filed a suit against the buyer agent for these losses and also the “loss of the benefit of the purchase” (e.g., they claim that the fair market value of the property was greater than what they were paying and that this value was lost because of the fault of their buyer agent).

The basis of the liability claim was that the buyer agent was negligent in failing to seek an extension of the mortgage commitment date. The buyers asserted that their agent was duty-bound to stay on top of the timetable and should have observed that the date for producing the commitment was fast approaching.

Before I weigh-in on the issue, what do you think? Was the buyer agent at fault and should she be obligated to reimburse the buyers for their losses? I am guessing more of you side with the buyer agent, but I am also guessing that some of you are more introspective: can this happen to me? Do I have an obligation to extend the mortgage commitment date if my buyers haven’t received their commitment?

No two cases are alike and a slightly different situation can or will will lead to different results. But we can draw some conclusions and perhaps alter our own practices to avoid the situation of this buyer agent. So, on to the answer.

One, buyer agents are advisors and guides, but not babysitters. Presumably the buyers are intelligent adults upon whom it should be impressed that timelines make differences. If you are required to produce a mortgage commitment by a certain date, then make it your obligation to follow through. Buyer agents need to impress upon buyers that they are participants and for their own wellbeing, have obligations to meet.

Two, even if you find that the buyer agent was negligent for failing to question the status of the commitment as the deadline approached, what difference did her negligence make? In other words, had she requested that the sellers extend the commitment date, would they? Presumably one doesn’t ask for an extension of time until one realizes that it is needed. When would that be? We all know that commitments are issued very close to commitment dates and we hardly worry two or three days out. It would seem that our buyer agent would be justified waiting until nearly the last minute to ask for such an extension. And if she asked near that commitment date, what would the sellers’ response have been? If the sellers were reluctant or experienced cold feet, would they really be willing to extend the commitment date? Hardly! This is the opportunity they would be looking for in order to terminate the agreement. So, it can be argued that any negligence on the part of the buyer agent was not a factor in losing the transaction.

With you as my jury, I have no doubt what the outcome of this suit would be: victory for our buyer agent! But such victories come at a price and are not always won. The better experience would be that the buyer agent was never sued and never had to defend herself in the first place. Keeping a watchful eye on the timetable established by the agreement of sale is critical, but so too is the need to underscore for buyers at the signing of the agreement that there are provision which can result in its termination; that timetables are imperative to be followed and that every buyer should proceed as though the seller may be looking for an excuse to terminate.

Copyright © James L. Goldsmith, Esquire, CALDWELL & KEARNS, P.C., 2013

All Rights Reserved


Jim Goldsmith is an attorney with Caldwell & Kearns and serves as general counsel to PAR. A substantial portion of his practice is dedicated to providing advice and counsel to real estate licensees. He and his firm represent and defend real estate salespersons and brokers in civil lawsuits and licensing claims across the Commonwealth. Jim also defends REALTORS® in disciplinary hearings conducted by the Real Estate Commission. He routinely counsels employers on employee relations issues and is one of the voices of the PAR Legal Hotline. He may be reached at www.realcompliance.com.