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Court of Appeals of Indiana - 181 Ind.App. 272, 391 N.E.2d 671
Tags: Excuse, Good Faith
tl;dr:
Failure to seek financing for a home in good faith constitutes a breach of a real estate contract.Video Summary
Case Summary
In the 1979 Indiana Court of Appeals case, Billman v. Hensel, Joseph Billman, a property buyer, was sued by James Hensel, a property seller, for not fulfilling their contract. Billman had agreed to purchase Hensel's home for $54,000 if he could obtain a mortgage loan of at least $35,000 within 30 days. When Billman failed to do so, Hensel demanded a $1,000 earnest money deposit as damages. Billman argued he was excused from the contract as he couldn't secure the necessary financing. The trial court sided with Hensel, but Billman appealed.
The Court of Appeals decided to reverse the ruling and ordered a new trial. The court determined that property buyers have an implied responsibility to reasonably and genuinely attempt to satisfy financing conditions. The court examined whether Billman tried diligently and honestly to secure a loan, noting he only contacted one bank and didn't explore other financing options. The court held that there was a factual question as to whether Billman had exerted a reasonable and good faith effort to secure the mortgage.
This case is important because it highlights subject to financing clauses, which are common in property transactions to protect buyers from purchasing unaffordable properties. These clauses are often subject to interpretation and enforcement by courts, which may impose implied obligations on the buyer to make a reasonable and good faith effort to meet these conditions. Failure to meet these obligations may result in a breach of contract.
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The case involves a contract for the sale of a property with a condition that the buyers secure a conventional mortgage of at least $35,000 within 30 days. The buyers failed to secure the mortgage and did not complete the purchase, leading the sellers to sue for a $1,000 earnest money/liquidated damage deposit. The court ruled in favor of the sellers, stating that the "subject to financing" clause was a condition precedent in the contract and the buyers did not secure a mortgage loan commitment within the contractual period. The lower court's judgment was affirmed on appeal. The buyer failed to deposit funds to cover the earnest money check and stopped payment on it. The buyer only contacted one financial institution and did not make a formal loan application.
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