Outten v. J.D. Partners

A-0087-97T1 (N.J. Super. App. Div. 1999) (Unpublished)
  • Opinion Date: February 2, 1999

CONTRACTS; CONTINGENCIES—A home buyer obligated to provide evidence that it has the necessary assets to complete its purchase without regard to the sale of its existing home can not at the same time insist upon relying on a mortgage commitment that is itself contingent on the sale of the existing home.

A buyer contracted to buy a single family home. The contract was made contingent upon the buyer securing a thirty year conventional mortgage and upon the sale of its existing home. It was also agreed, in light of these material contingencies, that the subject property would remain “actively on the market for sale . ” and that if the seller received another acceptable offer, the buyer would have 48 hours to waive the contingency and provide the seller “with evidence that Buyer has the necessary assets to complete the purchase without regard to the sale and settlement of the Buyer’s present home.” The seller obtained another offer and in response, the buyer notified the seller that it agreed to remove the home sale contingency from the contract. The buyer, however, could not demonstrate that it had the ability to carry both its existing mortgage and the as-yet unsecured mortgage. The seller felt that the buyer did not show its ability to complete the sale without a sale of the buyer’s existing home. The buyer argued that under the agreement, it was required to show only that it had sufficient assets to cover the amount of the purchase price above the contemplated mortgage and that it had until the expiration of the mortgage contingency date to qualify for a mortgage, by which time it hoped to sell its existing residence. The lower court found in favor of the seller on the premise that the home-sale contingency clause had to be read together with the mortgage contingency clause. That is, the waiver of the home-sale contingency and the showing of sufficient assets must be read together with the right to secure a mortgage commitment. The buyer thus could have met the contingency either by demonstrating enough assets to obviate the need for a mortgage or by agreeing to accept a bridge loan. The Appellate Division agreed, finding the buyer’s interpretation to be unreasonable and unfair to the seller, since, under the buyer’s interpretation, it would take no risk in waiving the contingency because it could still back out of the deal if its mortgage commitment did not come through.