Hawaii Pre-Licensing National Practice Exam

A buyer makes an earnest money deposit on a property and signs a contract that is contingent on specific financing terms. If a bank commits to the financing but the buyer changes his mind, what is the CORRECT statement regarding this situation?

1. The seller may accept the buyer's withdrawal without consequences

2. The buyer is legally obligated to proceed with the purchase

3. The seller may sue the buyer for breach of contract

4. The financing contingency automatically voids the contract

The correct answer is: The seller may sue the buyer for breach of contract

In this scenario, when the buyer's decision to change their mind comes after a bank has committed to the financing, the presence of a financing contingency becomes critical. A financing contingency is a provision in the contract that allows the buyer to withdraw from the agreement if they cannot secure funding, but it does not automatically mean that a buyer can withdraw without consequences once financing is secured. If a bank has confirmed financing, and the buyer then chooses to back out, this could be viewed as a breach of contract because the buyer is effectively not honoring the agreement they entered into. The seller, having met their obligations and secured a buyer who has the means to purchase, has grounds to seek remedies for the breach. Consequently, they might pursue legal action or other measures to hold the buyer accountable for the withdrawal, as it impacts the seller's ability to move forward with the sale. In this context, option C represents the potential for the seller to sue the buyer for breach of contract, as the buyer’s change of heart does not nullify the obligation created by the contract, especially since financing was secured. The buyer's obligation to proceed with the purchase is thus tied to the terms of the contract, and breaching that contract signifies legal implications for the buyer.