Contracts for New Home Construction in Maryland Require New Finance Provisions
May 23, 2016
During the 2015 Legislative Session, the Maryland General Assembly added to the laundry list of provisions that must be included in a contract for the construction of a new home. Specifically, contractors that build homes anywhere in the State of Maryland, must now include certain provisions that address the financing arrangements of the purchaser.
According to Section 14-117(j) of the Real Property Article, a contract for the sale of a new home “as defined in the Maryland Home Builders Registration Act, shall be contingent on the purchaser obtaining a written commitment for a loan secured by the property, unless the contract contains a provision expressly stating that it is not contingent.” Section 14-117(j)(1). Thus, if the purchaser of a new home is not obtaining financing, the home builder must include a specific provision stating that the contract has no financing contingency. In all other instances, the contract for a new home will be contingent on the purchaser obtaining financing.
The new provisions of Section 14-117(j) of the Real Property Article now require new home builders to specify the maximum loan interest rate that the purchaser is obligated to accept and the time period that the purchaser has to obtain a written loan commitment. Section 14-117(j)(2). The statute also provides that if the purchaser does not obtain a written commitment for a loan in accordance with the contract and/or within the time frame identified in the contract, either: (1) the new home builder can elect to notify the purchaser in writing that the contract is void; or (2) the purchaser can notify the home builder in writing that the contract is void, provided the notice is accompanied by documentation from a lender substantiating the purchaser’s inability to obtain financing in accordance with the terms of the contract. Section 14-117(j)(3). If either party declares the contract void under these new provisions, and if the purchaser has complied with the its obligations under the contract, the home builder is required to return any deposit that has been given by the purchaser. Section 14-117(j)(4).
The 2015 changes to the Real Property Article reinforce the need for new home builders to regularly review their form contracts to ensure that they are current and include all of the mandatory provisions required by state law.