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When entering a real estate transaction in Minnesota, contingency clauses are critical tools for protecting your interests. These clauses outline specific conditions that must be met for the contract to remain valid. Understanding and properly negotiating these contingencies can help ensure a smooth transaction and protect you from potential risks. Here’s a breakdown of common contingency clauses and how they function in Minnesota real estate contracts.
Home Inspection Contingency
A home inspection contingency allows you to have the property inspected by a professional before finalizing the purchase. This clause typically provides a window, often 7 to 15 days, for you to complete the inspection. If significant issues are discovered, you have the option to request repairs, renegotiate the purchase price, or even withdraw from the contract without losing your earnest money deposit.
Appraisal Contingency
An appraisal contingency ensures that the property is valued at or above the purchase price by a professional appraiser. This clause protects you from overpaying for a property. If the appraisal comes in lower than the agreed price, you can negotiate a lower price with the seller or walk away from the deal if an agreement cannot be reached. Lenders usually require an appraisal for mortgage approval, so this contingency also aligns with their requirements.
Financing Contingency
A financing contingency, also known as a mortgage contingency, specifies that the sale is dependent on you securing a mortgage. If you are unable to obtain financing, this clause allows you to cancel the contract without penalty. This contingency provides a safety net if unforeseen issues arise during the mortgage approval process, such as changes in your financial situation or problems with the lender.
Title Contingency
A title contingency ensures that the seller provides a clear title to the property. This means there should be no unresolved liens or claims against the property. A title search conducted by a title company or attorney will verify this. If any issues are found, you can request that they be resolved before closing or cancel the contract if the problems cannot be addressed.
Sale of Current Home Contingency
If you need to sell your current home before purchasing a new one, a sale of current home contingency allows you to make your offer contingent upon the successful sale of your existing property. This clause protects you from being financially stretched by owning two properties simultaneously. However, it may make your offer less attractive to sellers, so it’s important to weigh this factor in competitive markets.
Homeowners Association (HOA) Contingency
If the property is part of a homeowners association, an HOA contingency allows you to review the association’s rules, fees, and financial health before finalizing the purchase. This ensures you are comfortable with the community regulations and financial obligations associated with the property. If you discover issues with the HOA’s documents or practices, you can negotiate changes or withdraw from the contract.
Negotiating Contingency Clauses
Contingency clauses can be negotiated based on your specific needs and the dynamics of the transaction. Working with a knowledgeable real estate attorney can help you tailor these clauses to fit your situation and protect your interests effectively. Your attorney can also assist in interpreting any legal jargon and ensuring that the contingencies are enforceable and properly documented.
Conclusion
Contingency clauses are essential components of real estate contracts in Minnesota. They provide protection and flexibility throughout the purchasing process, helping you manage risks and make informed decisions. By understanding these clauses and working with a skilled real estate attorney, you can navigate your real estate transaction with greater confidence and security.