🧩 Carolina Elite Real Agent Scenario
Financing Contingency & Loan Denial – When Earnest Money Is Protected
🏠 Scenario
Your buyer was pre-approved for a $400,000 FHA loan and went under contract using SCR Form 310 (06/25 Revision).
During underwriting, the lender discovers an unreported car loan and denies financing five days before closing.
The buyer notifies their agent but does not provide a denial letter — they assume the seller will just “understand.”
The listing agent refuses to sign the release, claiming the buyer defaulted and the seller should keep the Earnest Money.
🧑⚖️ Broker Guidance
Under Section 7 (Financing) of SCR Form 310 (06/25 Revision):
The Financing Contingency protects the buyer through closing, provided the buyer made timely good-faith efforts to obtain financing.
If the lender denies or fails to approve financing during the Financing Period, either party may terminate by Notice.
The buyer must promptly notify the seller and brokers and supply a lender denial letter as documentation.
When termination occurs due to loan denial, the buyer is entitled to a full refund of Earnest Money — no Termination Fee is due.
If the buyer changes lenders, the seller must be notified in writing, and the new lender cannot delay closing without written seller consent.
📘 Citations:
§ 7 (Financing Contingency): “If the Buyer changes their Lender … Absent written approval by the Seller, Buyer cannot change lender if the closing date will change as a direct result. If a Lender subsequently declines or fails to approve financing, the Buyer shall notify the Seller and Brokers as soon as possible.”
§ 8 (Due Diligence): Termination Fee does not apply to Financing contingencies.
§ 22 (Default): Default occurs only if buyer fails to perform without valid contingency or proof.
⚙️ Action Steps for Agents
- Confirm the buyer’s loan application timeline.
Verify that the buyer applied by the contract’s financing date and provided lender disclosures. - If loan is denied, get documentation immediately.
Obtain the lender’s official denial letter on company letterhead.
Share it with the listing side when submitting the Release of Contract (no separate Notice of Termination is required). - Keep communication in writing.
Email documentation to both brokers and closing attorney to preserve the record. - Ensure lender change notifications are handled correctly.
Seller must consent if the switch affects the closing date. - Educate the buyer early.
Make sure they understand that loan denial is a protected contingency — but only when properly documented.
