Question 85

Loan contingency clause should be included to protect earnest money.

Including a loan contingency clause is essential for the buyer as it safeguards their earnest money in case they cannot secure financing for the property.

A) purchase-money clause.

A purchase-money clause relates to the financing structure of the transaction, but it does not specifically protect the buyer's earnest money. This clause typically addresses the terms under which the seller provides financing to the buyer, and therefore it does not fulfill the buyer's need for a contingency related to securing a loan.

B) loan contingency clause.

The loan contingency clause is specifically designed to protect the buyer's earnest money in the event that they are unable to obtain the necessary financing. This clause ensures that if the buyer's loan application is denied, they can withdraw from the contract without losing their earnest money, making it the most appropriate option for this scenario.

C) pre-qualification letter.

A pre-qualification letter serves as a preliminary assessment of the buyer's financial situation and ability to secure a loan. However, it does not provide any legal protection for earnest money. It merely indicates that the buyer is likely to qualify for a loan, which does not guarantee financing.

D) waiver of lien.

A waiver of lien is a legal document that relinquishes a lien on property, typically used in construction or real estate transactions to clear title. It does not relate to loan contingencies or earnest money protection and therefore is not relevant in this context.

Conclusion

The loan contingency clause is the definitive choice for protecting the buyer's earnest money, as it directly addresses the risk of financing failure. All other options either do not provide this specific protection or are unrelated to the buyer's need to secure a loan, further emphasizing the importance of including a loan contingency clause in the purchase agreement.