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What if a real estate transaction falls through due to financing?

On Behalf of | Jan 16, 2025 | Real Estate Law

Real estate transactions can be complicated, and financing issues are a common reason deals fall apart. Buyers and sellers should know what to do when a sale cannot proceed due to financial challenges. Acting quickly and understanding your legal options can help minimize financial losses.

Review the purchase agreement

The first step is to review the terms of the purchase agreement. Many real estate contracts include financing contingencies. These clauses allow buyers to back out without penalty if they cannot secure a mortgage. Sellers should check whether the agreement provides any remedies or retains the earnest money deposit.

Address the earnest money deposit

Earnest money deposits are often a source of dispute when a deal falls through. If a contingency covers the buyer’s inability to secure financing, they may be entitled to a refund. However, if the buyer failed to act in good faith, the seller might keep the deposit as compensation. In Ohio, escrow agents or attorneys typically hold earnest money, and disputes may require mediation or legal intervention.

Explore alternative financing options

Buyers facing financing challenges should explore all options, such as applying with different lenders or seeking co-signers. Sellers may also consider offering seller financing, which allows the buyer to make payments directly to the seller over time. Consulting financial professionals can provide additional solutions.

Understand your legal options

If disputes arise, Ohio law allows parties to resolve them through mediation, arbitration, or litigation. Breaches of contract or misrepresentations may require legal action to recover damages. Buyers and sellers should document all communications and retain copies of the purchase agreement to support their claims.

Moving forward after a failed transaction

When real estate transactions fall through, it’s important to address disputes and explore alternatives. Understanding your rights under Ohio law and taking appropriate steps can help protect your financial interests and prepare for future opportunities.