Dear Mr. Azrael,

I am in the process of selling a house and would like some guidance.

I received a contract (and a $500 deposit) from an unmarried couple.

They were seeking an FHA loan and I had written confirmation that they had pre-qualified for the loan contingent upon an acceptable contract of sale, appraisal, and final review by the underwriting department.

There were several repairs and upgrades that were required in order for the FHA loan to go through. I agreed to make the repairs and upgrades.

My real estate agent received word that the couple was trying to back out of the agreement.

My agent was told that one party was about to lose his job and would not be able to secure the loan. We have received no written notification that this, in fact, was the case.

My questions concern my rights as the seller and what if anything am I entitled to (deposit, cost of upgrades and repairs).

In addition, can I legally enforce the signed agreement that I have and are they able to back out of the agreement with just a verbal notification of job loss?

Frank Olszewski

Lutherville

Dear Mr. Olszewski:

Where a buyer intends to purchase a home with FHA-insured financing, the contract of sale is supposed to include an "FHA addendum."

The addendum conforms to FHA guidelines in expressly making the contract contingent on the buyer's obtaining a mortgage insured by the FHA.

The first step is to carefully read your contract of sale to see if it contains a FHA addendum or other financing contingency clause.

The contract of sale also typically contains a section dealing with the buyer's obligation to apply for a mortgage.

The "mortgage application clause" usually requires the buyer to apply for a mortgage within seven to 10 days after the contract is executed, and makes the contract contingent upon the buyer's obtaining a written mortgage commitment (not just a pre-approval letter) within 30 to 45 days from the contract date.

In your case, it appears that the buyer may have gotten a written commitment for a FHA-insured mortgage. But, the commitment itself may be contingent on the buyer's continued employment.

If the FHA lender revokes or cancels the commitment for a legitimate reason (such as a buyer's loss of employment), my view is that the buyer would not be in default of the contract and would be entitled to a return of the $500 deposit.

The FHA addendum, making the contract contingent on a FHA-insured mortgage loan, would not have been met.

A buyer must act in good faith, however, and can't use a phony excuse to cause financing to be withdrawn.

You should insist on seeing a written denial of financing from the mortgage lender. The lender will specify the reasons why credit was denied.

If circumstances show that the buyer has disabled themselves from obtaining a mortgage, then you may have a right to retain the deposit or sue the buyer for damages.

When a buyer defaults, the seller's best course of action usually is to put the house back on the market immediately, so it can be sold without delay.

Often, when the property is resold quickly, a seller can minimize or even avoid losing money.