Statewide Form 22A—Financing Contingency: The Broker’s Perspective

A word from The Tim: This three-part series of posts is from long-time Seattle Bubble participant Kary Krismer, managing broker with John L. Scott/KMS Renton. Kary’s expertise in both real estate and law gives him a good perspective on issues like the nuances of real estate sales forms here in Washington State. Thanks, Kary!

Part 1: Statewide Form 22A—Financing Contingency: The Seller’s Perspective
Part 2: Statewide Form 22A—Financing Contingency: The Buyer’s Perspective

The statewide financing contingency form, Form 22A, present parties with some serious issues to consider. Prior pieces addressed seller and buyer concerns, but Form 22A also presents brokers with serious issues to consider.¹

The most complex issues for listing brokers may involve the seller’s decision to send a request to the buyer to waive their financing contingency using Form 22AR. Some attorneys believe that a seller’s request for waiver should frequently be sent simply because the waiver of the financing contingency would benefit the seller. In contrast, I would note that in practice I have seldom seen Form 22AR sent, either by my listing clients or sellers when I represent buyers. That calls into question why there is a difference between what some lawyers in Washington think should be done, and what actually occurs.

To analyze that question the first issue to be addressed is what does a seller gain sending Form 22AR? In most cases the seller gains absolutely nothing, even if the buyer waives the contingency. Since the vast majority of transactions close if they have made it 30 past mutual acceptance, there is no benefit for those sellers. But even if the buyer’s financing is a concern, Form 22AR can be sent and the buyer can ignore it, again conveying no benefit to the seller, unless the seller actually terminates the contract. The only time sending Form 22AR is clearly in the seller’s interest is when they have another better offer in hand that is not subject to inspection, or they happen to know the buyer’s financing is in trouble. Those are very limited situations, which most likely explains why I seldom if ever see Form 22AR used in practice.

So what should a listing broker do when the time comes where the seller has the right to send Form 22AR?² Some attorneys argue that brokers should routinely advise their seller to send 22AR simply because the waiver of the financing contingency could benefit the seller. In contrast, while there probably is no one “correct” practice, it is my belief that a broker should remind their client of the right to send Form 22AR shortly prior to the time allowed arriving, explaining any concerns they might have about the specific situation, and also remind their client that it may be prudent to seek legal advice. Although there may be no one correct practice, I believe it is fairly clear the decision to send Form 22AR is the seller’s decision, not the broker’s. Unfortunately it would not surprise me if many brokers fail to take any action, and simply allow the Form 22A deadlines to pass without giving Form 22AR a thought or mention.

In the prior pieces I discussed how if a seller’s house is vacant and has a large monthly mortgage payment, then the seller is going to be justifiably upset if a buyer’s financing fails. They would likely want to at least be compensated for the interest that they paid while the transaction was pending. In contrast, a seller who lives in the house and isn’t particularly concerned when they move out might not be as upset, and clearly would not be as damaged, absent a declining market. Ideally brokers would talk these issues out with their seller clients rather than simply presenting them with a form to sign.

Beyond considering their own situation, it is my opinion that the seller should be advised to at least consider the affect on the buyer of sending Form 22AR. As noted in the prior piece addressing buyer concerns, receiving Form 22AR can cause the buyer serious anxiety and concern. Sending Form 22AR 30 days after mutual acceptance could reignite any prior tensions that were created negotiating price and inspection, or even make them worse, and that could come back to impact the seller. For example, maybe the seller unexpectedly needs a delay in closing date because of a delay in receiving a loan payoff from their mortgage creditor, or maybe their new house will not be ready on time for them to move in. If that occurs after sending Form 22AR, then they may find it harder to get uncompensated favors, or even compensated changes from the buyer. Alternatively, the buyer might discover something about the house after closing, such as a water line break on a line the new neighbors say the seller had significant problems with before closing. A buyer who does not like a seller is going to be more likely to sue the seller over smaller amounts, and being sued is a horrible consequence of taking any action, particularly if that action conveyed no real benefits. Simply put, the seller should at least consider possible negative consequences to sending a buyer Form 22AR.

Turning attention to a buyer’s broker, they will have their own concerns when Form 22AR arrives, although those are much more manageable. A buyer’s broker will need to help their buyer client walk though the possibilities. How solid is their client’s financing? What will be the consequences if the financing contingency is waived and financing does fail? What will be the consequences if the buyer does not waive the financing contingency and the seller terminates the contract? The buyer will face some tough choices and the broker will need to provide advice and/or direct the buyer to other sources of advice, while at the same time recognizing the stress of having to make those decisions.

Finally, both the prior pieces have mentioned the possibility of a broker using “custom language” to get around some of the issues presented by Form 22A. I have described that option as being problematic and would be hesitant to recommend it. First, most agents are not qualified to draft such language, as evidenced by some brokers thinking they improve their seller’s position by crossing out the appraisal provisions of Form 22A.³ Even if drafted by an attorney, custom language can present concerns for the other party and their broker. Alternatives to such an important form need to be well thought out. For example, if a contingency does terminate after the mere passage of time, under what circumstances can a buyer back out if their financing is not going as planned? Drafting those provisions would not be easy, and therefore an improved financing contingency form will likely need to await the work of the drafters of the statewide forms.

Brokers in dealing with Forms 22A and 22AR should consider many different issues. While the areas of concern are different for a listing broker and the buyer’s broker, both probably should remind their clients of the option to seek legal advice, even if they had done so previously. The process of using Forms 22A and 22AR can have serious implications for the parties, so brokers should understand how the forms operate and the implications of the actions which can be taken after mutual acceptance.

Note: This piece is not intended to provide legal advice, and is merely the author’s interpretation of Form 22A and related forms. A party wanting legal advice needs to hire and consult with their own attorney regarding their own specific facts. That attorney’s opinion may vary from that of the author. In addition, brokers should consider consulting with their designated and/or managing broker.