Mortgage Commitment Letter

Case Studies

1) Sandra Baker has contracted to buy a house and is working with a mortgage broker. Sandra is concerned about meeting the monthly payment obligations of a loan, and the mortgage broker suggests she go with an adjustable-rate mortgage loan. Sandra knows that with the lower starting interest rate on an adjustable – rate loan, the initial monthly payments will be easier for her to meet. she is concerned about what will happen down the line when that rate increases. The mortgage broker say to her, “Oh, you can always refinance later.” Do you believe the mortgage broker is giving her sound advice? why or why not?

2) Raymond Steele entered into a contract with Michelle Findley to purchase a parcel of property for $175,000. The contract contained a mortgage contingency clause that provided that the contract was contingent upon the buyer obtaining a first mortgage commitment from a lending institution in the amount of $140,000 within four weeks from the signing of the contract. The clause further stated that the buyer agreed to make a good faith application for the mortgage loan and that, if approval was not obtained in the four – week period, either party could terminate the contract by providing written notice. Raymond obtained a conditional mortgage commitment letter for $180,000 from ABC Bank within the time frame specified in the contract. The letter contained closing conditions and a list of approval conditions, including an appraisal report indicating the value of $195,000 for the property. ( The purchase price was $175,000.) Upon expiration of the four-week deadline, Michelle’s attorney sent Raymond a letter stating that Michelle elected to terminate the contract. She then entered into another contract with a new prospective buyer. Has Michelle breached the contract with Raymond? why or why not?

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