The Financing Contingency’s “5 Day Rule” in the CCRA contract

by | Jul 17, 2015 | Legal Tips

This past week I received two questions from agents on the “5 Day Rule”. Both agents asked if the “5 Day Rule”, as set out in the financing contingency paragraph, move with the new closing date if the closing date gets extended past the original date in the contract?

As you will recall, the “5 Day Rule” is part of paragraph 6 of the contract and says that “all financing contingencies herein automatically expire 5 business days prior to the closing date set forth in paragraph 7. . .” Paragraph 7 says “this transaction will be closed on or before _____________, 2015.”

Whether the “5 Day Rule” moves or ends is totally dependent on the language in the addendum used to extend the closing date. For example, if the addendum says “the closing date set forth in paragraph 7 of the contract is hereby changed to ___________, 2015”, the financing contingency would end five business days prior to the new closing date. The language of paragraph 6 clearly says financing contingencies expire 5 business days prior to the date set forth in Paragraph 7; therefore, if the addendum changed the date in paragraph 7, that is the date you would now use for application of this provision. Since most contract extensions are done in this manner, in most cases the “5 Day Rule” moves with the new closing date.

If, on the other hand, the extension language states that the contract is no longer contingent on financing, the “5 Day Rule” would end 5 business days prior to the original closing date. The lesson learned is if you want the financing contingency to expire when originally contemplated, you need to specifically say so in the addendum.

* The Contract referred to in this Item is the Central Carolina Realtors Association contract that is widely used in the Midlands of South Carolina.

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