Understanding the Mortgage Contingency in a New Jersey Real Estate Contract

Understanding the Mortgage Contingency in a New Jersey Real Estate Contract

Most residential real estate contracts in New Jersey contain a mortgage contingency clause. This provision protects the buyer by allowing the contract to be cancelled if financing cannot be obtained within a set period. While buyers often assume this is standard language, the details of the clause are critical and can determine whether the buyer keeps or loses their deposit.

The typical mortgage contingency gives the buyer a fixed number of days, usually thirty to forty-five, to secure a written mortgage commitment. If the buyer is denied financing during this period, they may cancel the contract and recover their deposit, provided they acted in good faith and complied with the clause’s requirements. The seller, in turn, gains confidence that the buyer will either secure financing promptly or release the property back to the market.

Problems arise when buyers fail to apply for financing diligently or fail to notify the seller of delays. In those circumstances, the seller may argue that the buyer breached the contract and that the deposit should be forfeited. I have seen disputes where buyers assumed that a denial at the last moment excused them, only to discover that their lack of timely communication cost them their deposit.

Another issue involves the type of loan sought. The contingency may specify conventional financing, FHA, or VA loans. If a buyer applies for a loan outside the terms of the contingency, they risk losing the protection. For example, if the clause requires pursuit of a conventional mortgage and the buyer only applies for FHA financing, a denial of that FHA loan may not entitle the buyer to cancel without penalty.

From the seller’s perspective, the mortgage contingency introduces uncertainty. A seller may take the property off the market only to have the deal collapse weeks later. To minimize this risk, sellers should insist on strict compliance with the contingency dates and require notice of all financing developments. Sellers should also recognize that buyers cannot control every decision of a lender, and flexibility may prevent unnecessary disputes.

In my experience, the mortgage contingency is one of the most misunderstood provisions of a real estate contract. Buyers often do not realize that they must act promptly and communicate diligently to preserve their rights. Sellers often do not realize that overreaching demands can push buyers into default unnecessarily. Proper legal guidance ensures that both sides understand their obligations and that disputes are avoided.

For more information about your legal rights or to schedule a consultation, please contact the Law Offices of Peter J. Lamont at www.pjlesq.com, call 201-904-2211, or email info@pjlesq.com.

Contact us today to discuss your business or legal matter. Put our 20+ years of legal experience to work for you.

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For detailed insights and legal assistance on topics discussed in this post, including litigation, contact the Law Offices of Peter J. Lamont at our Bergen County Office. We're here to answer your questions and provide legal advice. Contact us at (201) 904-2211 or email us at  info@pjlesq.com.

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About Peter J. Lamont, Esq.

Peter J. Lamont is a nationally recognized attorney with significant experience in business, contract, litigation, and real estate law. With over two decades of legal practice, he has represented a wide array of businesses, including large international corporations. Peter is known for his practical legal and business advice, prioritizing efficient and cost-effective solutions for his clients.

Peter has an Avvo 10.0 Rating and has been acknowledged as one of America's Most Honored Lawyers since 2011. 201 Magazine and Lawyers of Distinction have also recognized him for being one of the top business and litigation attorneys in New Jersey. His commitment to his clients and the legal community is further evidenced by his active role as a speaker, lecturer, and published author in various legal and business publications.

As the founder of the Law Offices of Peter J. Lamont, Peter brings his Wall Street experience and client-focused approach to New Jersey, offering personalized legal services that align with each client's unique needs and goals​.

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