hard · National Real Estate Exam contracts
A buyer and seller sign a binding purchase agreement for a residential property. Two weeks before the scheduled closing, a lightning strike causes a fire that destroys the detached garage.
If the jurisdiction follows the traditional common law doctrine of equitable conversion and the contract is silent on the matter, what is the legal result?
- The buyer must proceed with the purchase at the full contract price because they hold equitable title.
- The buyer may rescind the contract entirely and recover the full earnest money without penalty
- The contract is automatically voided by law because the improvements were destroyed before closing occurred
- The seller alone bears the entire risk of loss since they still retain legal title and possession until closing
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