Caseflicks

Court of Special Appeals of Maryland • 1977

Bushmiller v. Schiller

368 A.2d 1044 | 35 Md. App. 1 | 1977 Md. App. LEXIS 447

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Takeaway

In short, this case holds that a buyer cannot invoke a mortgage-financing contingency after simply abandoning the search for financing because she no longer wants the property; the buyer must make bona fide, reasonable, and prompt efforts to obtain the specified loan.

Background

After winning a Maryland State Lottery prize that paid $50,000 annually for 20 years, Eunice Myrta Schiller agreed on July 25, 1975, to buy Joseph Bushmiller’s Baltimore County residence for $130,000. She paid a $13,000 deposit. The contract required settlement within 45 days and made the purchase contingent on Schiller’s ability to obtain, within 10 days, a written commitment for a $100,000, 20-year first mortgage at the prevailing interest rate. It also required her to apply immediately, submit all necessary materials, and pursue resubmission or appeal if needed. If she failed to settle, the seller could elect to retain the deposit.

Before the contract was executed, Schiller applied at Equitable Trust Bank for a $97,500 loan over 25 years. A bank officer indicated that the bank would likely consider financing structured as a five-year loan amortized over 20 years, with a balloon payment at five years. After visiting her son, Schiller learned what balloon financing meant, decided the house was too expensive, canceled her application, and made no further effort to obtain the contractually specified loan. She later rejected the seller’s offer to help obtain financing on acceptable terms.

Schiller sued to recover the $13,000 deposit, asserting that she could not obtain the required financing. Bushmiller countersued, alleging that she had failed to make good-faith efforts to secure financing. After a bench trial, the Circuit Court for Baltimore County ruled for Schiller, awarding her the deposit and denying Bushmiller’s counterclaim. Bushmiller appealed.

Issues

Issue #1

Whether Schiller satisfied the mortgage-financing contingency by making good-faith, reasonable, and prompt efforts to obtain the specified mortgage commitment.

Holding

No. Schiller did not satisfy the condition because she abandoned her loan application and made no further reasonable effort to secure the required financing after deciding she no longer wanted the house.

Reasoning

A financing contingency in a real-estate contract must be given effect unless the parties alter it or the beneficiary waives it. But where, as here, the contract places the burden of obtaining financing on the purchaser, that purchaser must comply with the express duties to apply promptly and submit required materials. The law also implies a duty to take bona fide, reasonable, and prompt action to obtain the financing specified in the contract.

The trial judge could properly find that Schiller initially did not understand balloon financing and learned its meaning during her visit to her son. The appellate court did not disturb those factual findings. But the critical fact was that, once she learned about balloon financing and became concerned that she could not afford the home, she canceled her Equitable application and did nothing else to seek a qualifying loan.

The trial court reasoned that obtaining a $100,000 written commitment within 10 days would probably have been difficult. The appellate court held that difficulty is not impossibility, and that no efforts cannot qualify as reasonable efforts. Nothing showed that Schiller stopped pursuing financing because she believed it could not be secured in time; the evidence instead showed that she had simply decided she wanted out of the purchase.

Schiller’s later refusal even to consider the seller’s offer to help secure financing on terms she wanted further supported the conclusion that she had not acted in good faith. Although that offer came after the 10-day period and would not have required acceptance if she had diligently but unsuccessfully pursued financing during the period, her refusal was relevant evidence of why she had ceased efforts in the first place.

Issue #2

Whether Bushmiller was entitled to retain the $13,000 deposit and recover on his counterclaim after Schiller failed to make the required good-faith effort to obtain financing.

Holding

Yes. Because Schiller failed to fulfill her contractual duty to make good-faith efforts to satisfy the financing condition, Bushmiller was entitled to judgment for the $13,000 deposit, plus costs and interest from the date of entry.

Reasoning

The financing provision did not give Schiller an unrestricted option to withdraw from the contract whenever she changed her mind about the purchase. Her inability to obtain financing could excuse performance only if she had made the contractually required good-faith, reasonable, and prompt efforts to obtain it.

Because Schiller abandoned the effort for personal reasons rather than pursuing the available avenues for financing, the trial court’s finding of good faith was clearly erroneous. Her failure to satisfy that obligation defeated her claim for return of the deposit and established Bushmiller’s right to the stipulated $13,000 damages in his counterclaim.