Carefully Drafted Mortgage Contingency Clauses–The Deal (or Customer) you Save May be Your Own

I know in a lot of jurisdictions attorney do not get involved in drafting Purchase and Sale Agreements. Since in Massachusetts, where I practice, such practice is not the case, I deal with Mortgage Contingency Clauses literally every day. I might add that my experience has been that most Buyers and Sellers, and some realtors, for that matter, do not understand some of the nuances of the Mortgage Contingency Clause, so I thought it might be helpful for people in Rainland to know a little bit more.


     1. The Mortgage Contingency Clause (the “MCC” for short) is designed to afford protection to the Buyer. It is a vehicle through which the Buyer can sign a purchase agreement, and still get his or her deposit back if financing is not committed to. Please understand that significance of the term “committed to”. I assume most of you know that if after a mortgage commitment, a potential Buyer loses a job, or has some other kind of financial problem, the Lender may not complete the mortgage financing. Unfortunately, I have seen this happen, on more than one occasion.

     2. MCC’s come in all shapes and sizes They can be tailored to meet the particular needs of the Buyer. If the Buyer is seeking FHA or other high-leverage financing, it may be important to have the MCC indicate, straight-out, that the commitment must contain an appraised value at least as high as the purchase price. That will give the Buyer protection if the appraised value comes in lower. I have done MCC’s which indicate that if the appraisal comes in lower, the Buyer and Seller agree to renegotiate the purchase price. If you can get that for your Buyer, you are doing a good job for him or her.

     3. In my purchase and sale agreements, I always provide that the mortgage commitment must be written, and must contain no terms and conditions which the Buyer cannot reasonably be expected to satisfy in a reasonable amount of time. That may help save your customer’s deposit, if a “commitment” is issued, but is full of conditions which are difficult.

     4. Do not let the Seller require the delivery of a rejection for the MCC to take effect. The MCC is for the Buyer. If the Buyer cannot get a mortgage commitment by the time set forth in the purchase and sale agreement, there is no deal. That is the way things should be structured. Anything else leads to needless haggling and a waste of everyone’s time.

     5. Keep track of the commitment date. If it is missed, and the appropriate notice is not given, your Buyer’s deposit is in jeopardy. Whose responsibility is it to monitor the date? That is an excellent question. I have a paralegal in my office who does this. You may have similar assistance. The date is important, especially in those jurisdictions (not new York, I am told) which take “time is of the essence” in a contract seriously.

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