As part of the contract on a home, there's a section of the offer where the buyer indicates whether their lender will provide a letter, after a certain number of days, certifying that the buyer is now fully qualified for a mortgage. The contract is very specific about this letter and what it needs to say. There are six mandatory items:

1. Purchaser is approved for the Specified Financing.

2. A Ratified Contract has been received.

3. A written application for the financing has been made.

4. Income, asset and liability documentation on Purchaser have been received.

5. Purchaser's credit has been reviewed, and

6. The application has been reviewed and meets underwriter and investor guidelines.

The buyer and seller negotiate how many days will be allowed for this letter to be received. 14 days is a number I see fairly often so we'll use that for our discussion here.

If, at the end of that 14 days, the letter is produced, and, if, subsequently, the lender does not honor the lender and does not fund the loan, the buyer is considered in default and may be at risk for losing their earnest money deposit. This is a good reason for choosing your lender carefully!

What I continue to see is this section of the contract completed indicating the letter will arrive in 14 days. And, the 14th day comes and goes with no letter.

The seller's options at that point are to continue to wait and hope they get a letter, or to void the contract. Let's face it, the chances of any seller voluntarily voiding a contract in this market are slim and none!

So, essentially, this is another toothless provision. And, the entity responsible for producing this letter in a timely fashion, suffers absolutely no consequences for failing to do so. The lender won't lose any earnest money. There's no penalty to them for failing to deliver on the promise that's been made on their behalf. Fair enough, since they didn't sign off on this. But then, why bother putting it in the contract.

This is a contract that was written for a hot seller's market. Provisions like this are essentially useless right now. And, agents need to be carefully explaining that to the sellers to make sure their expectations are realistic.

The truth with this, and any contract, is that the language is only binding to the extent that there's sufficient leverage to enforce it. This is a waste of paper and ink!