Question

Simon makes an earnest money deposit on a property and signs a contract that is contingent on specific financing terms. Even though a bank has committed to the financing, Simon notifies the seller in writing that he does not intend to buy the property. Which of the following statements is correct? Select one:

a. The bank may sue Simon
b. The seller may sue Simon for breach of contract
c. Simon may rescind the contract only if he pays a broker fee
d. Simon is entitled to the return of his earnest money deposit

Answer 1

The seller may sue Simon for breach of contract because he is backing out of a legally binding agreement without a valid reason, risking the loss of his earnest money and potential additional damages.

Step-by-step explanation:

When Simon makes an earnest money deposit on a property and enters into a contract contingent on specific financing terms, he is creating a legally binding agreement. If the bank has committed to the financing but Simon chooses to notify the seller in writing that he no longer wishes to purchase the property, Simon may face legal consequences. The correct statement from the options provided is: b. The seller may sue Simon for breach of contract. This is because Simon is backing out of a legally binding agreement without a valid contractual reason. Therefore, Simon risks losing his earnest money deposit and possibly facing additional damages if the seller takes legal action.