What do you do if you lose your job just as you're about to secure a loan for a new home?
A Reddit user posed this question, claiming that their partner was allegedly laid off during the recent federal mass firings.
"We are getting a letter from the lender confirming that we are denied financing now," the user claimed in the post. "Additionally, our contract was contingent upon us finding a suitable new home, which we did, but it's gone now."
Then the user posed the big question: "Are we gonna get sued?"
Federal workers fired in droves
Thousands of federal workers have been laid off in the past few weeks in the United States.
"It has been some time since we have seen unexpected mass firings like this," says real estate professional and attorney Bruce Ailion, of Re/Max Town & Country in Atlanta. "People who worked in the government public sector often accepted lower wages because of the expectation of job security. I'm sure the last thing these sellers planned for when crafting their transaction was losing a government job."
As a result, there's been a lot of social media chatter about what will happen to the Washington, DC, real estate market.
"I spoke with a DC investor about this, and he's slowing down on buying due to uncertainty," says Cedric Stewart, a real estate expert at Keller Williams in Washington, DC. "But this time, we're still seeing multiple offers on hot homes, and the only section with increased listing activity so far is Loudoun County, VA—25 miles west of DC."
Stewart says the Washington, DC, area has so many lawyers, medical pros, consultants, tech workers, and military "that it's unlikely the local market will tank—but we could see an increase in listings."
Additionally, although inventory is rising and prices are cooling in the DC area, those trends predate the 2024 presidential election, and are largely in line with national trends.
"DC is not a booming market, but it's not crashing either," says Realtor.com senior economist Joel Berner. "It's really pretty average within a national market that's also cooling."
In the meantime, what should the homeowners do? We consulted with real estate professionals for their insights and advice on the matter.
Why did they lose financing for a new home?
Even though the Reddit poster's partner supposedly had a job when they were pre-approved for a mortgage, everything changed when they got laid off.
"Income is the single most important factor in getting a mortgage with a lender," says mortgage broker Brady Bell, of Bellhaven Real Estate in Idaho Falls, ID. "There are plenty of programs for people with bad credit, but there aren't many programs for unemployed individuals without an income."
For example, if you have good credit, no debt, and a 5% down payment, you'd need to make at least $86,000 per year to qualify for a $500,000 home, according to Bell.
"However, lenders might be inclined to lend more than a person can actually afford, since lenders only get paid when a loan closes," says Bell. "While you can get approved for a $500,000 house with an $86,000 income, it would be extremely tight. You'd be super stretched, but you could technically still 'afford' it. However, you'd really need to make at least $127,000 a year to be able to comfortably afford a house in that price range."
Is a contract contingency normal?
The Reddit poster had what's called a home replacement contingency.
This means the seller is required to sell their home only if they can find and secure a new property to buy first.
It's similar to the sale of prior home contingency, which refers to a buyer needing to sell their existing home before they can purchase a new one.
The home replacement contingency is more seller-focused, and the sale of prior home contingency is typically buyer-focused.
"It's extremely common for a deal to be called off due to a layoff," says Bell. "Within about 24 hours of closing a real estate transaction, a final [verification of employment] is typically completed. If that VOE indicates the borrower on the mortgage lost their source of income, it could prevent that borrower from qualifying."
Bell says there are instances where there is a second wage earner such as a spouse or partner on the loan who still qualifies without that lost income, and in that case, the loan could proceed.
"However, if they no longer qualify, the lender has no choice but to deny lending to the borrower for insufficient income," Bell says, "and then the seller has to call off the sale of their house due to losing their new home."
That happens more often than you think, even at the final hour.
"One of my team members in Florida had buyers that literally found out that their loan was denied at the closing table with a brand-new construction home they were going to buy," says Cara Ameer, a real estate agent with Coldwell Banker who operates in California and Florida. "The wife had lost her job and had not told her husband."
Common contingencies in real estate
Contract contingencies are a standard part of real estate transactions. These are some of the most common contingencies:
Mortgage/financing contingency
A mortgage/financing contingency is a clause in a contract that allows the buyer to back out of the deal if they are unable to secure financing for the home purchase. It protects the buyer by ensuring that if they can't get a loan or mortgage within a specified time frame, they can cancel the agreement without losing their earnest money deposit.
This contingency is usually included to give buyers time to apply for and secure a mortgage or financing. If the buyer doesn’t get approved, they can terminate the contract without penalty.
Home inspection contingency
A home inspection contingency is a clause in the contract that allows the buyer to have the property professionally inspected within a certain period after the offer is accepted. If the inspection reveals significant issues with the home, the buyer can negotiate repairs, ask for a price reduction, or even walk away from the deal entirely without losing their earnest money.
This contingency protects the buyer by giving them the option to back out or renegotiate if the home has problems that weren’t initially visible or disclosed.
Homeowners insurance contingency
A homeowners insurance contingency is a clause in the contract that makes the purchase of a home contingent on the buyer being able to secure homeowners insurance for the property.
Lenders typically require buyers to have insurance in place before finalizing the loan. This contingency allows the buyer to back out of the deal if they are unable to obtain insurance in a certain number of days, which could happen if the home is in a high-risk area such as a flood or fire zone or has significant issues that make it uninsurable. It protects the buyer from moving forward with the purchase without proper insurance coverage.
"Once you do go under contract, you should start shopping for insurance right away during your due diligence period to ensure you can secure a policy at a price and terms that you are comfortable with," says Ameer. "In California, there is now a specific contingency for insurance as part of the contract."
At least 13% of real estate agents in California had a sales transaction canceled due to their clients not being able to find insurance in 2024, according to the California Association of Realtors.
And that number is likely to go up in 2025, especially after the catastrophic California wildfires.
Title contingency
A title contingency is a clause in the contract that ensures the seller provides a clear and marketable title to the property. It gives the buyer the right to back out of the deal if any title issues or defects are found during the title search, such as liens, disputes, or ownership claims that could affect the property's transfer.
It protects the buyer by ensuring they are purchasing a property that can be legally and freely transferred without any legal complications or unresolved claims.
Will the seller get sued?
The Reddit user whose partner was laid off is worried about getting sued because the financing on their new house fell through, and they can no longer sell their house now.
"There is risk of litigation here, but the outcome of this situation will depend entirely on the precise language used in the contract," says attorney Chad D. Cummings, of Cummings & Cummings Law in Florida and Texas.
If the contract was properly drafted by the seller’s attorney or agent, then the seller’s obligation to close on the existing home would not yet have arisen because they never fully secured a replacement property.
"In that case, this would likely be a nonissue, litigation risk would be minimal, and the poster would likely have no further action to undertake other than to return the earnest money out of escrow," says Cummings.
Conversely, if the contract language is vague or ambiguous—for instance, if it simply states that the sale is contingent upon finding a suitable replacement home but does not define what “find” means—there is a heightened risk of dispute.
In any case, the Reddit poster should check their contract for a force majeure clause, according to attorney Claudia Cobreiro, of Cobreiro Law in Miami.
"In contracts here in Florida, the standard force majeure clause includes acts of God, which are outside of a party's control, such as hurricanes or natural disasters," says Cobreiro. "But starting in 2020, force majeure also included 'governmental actions and mandates' due to COVID. The argument here would be because of this governmental act, this person lost their federal job, which would be covered by the force majeure clause"—letting them off the hook.
Cobreiro says this would be something unprecedented, "but that's why we sometimes end up in litigation, because it's something we haven't seen before."
The Reddit poster should reach out to their real estate agent or attorney to explore their options, aiming to resolve the issue amicably and to avoid legal action if at all possible.
After all, a layoff is hard enough to deal with without a lawsuit in the mix.
Read more at Realtor.com
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