As always, this is not legal advice. For legal advice, consult a lawyer, not a blog.
First and foremost, let me admit my own ignorance up front as to exactly how a buyer works with a mortgage broker. Hopefully, someone with such knowledge and experience will clarify any errors below that result from my ignorance. Indeed, this post is for my own education as much as anything else.
In its current iteration, the financing contingency (NWMLS Form 22A) specifically defines “lender” as “the party funding the loan.” Thus, by its very terms, the term lender does not include a mortgage broker, since a mortgage broker simply brokers the loan (i.e., matches up a lender with a borrower) and does not actually lend any money.
So what’s the issue? Its two-fold. First, in paragraph 1 Form 22A states: “If Buyer changes the lender without Seller’s prior written consent after the agreed upon time to apply for financing expires, then the Financing Contingency shall be deemed waived.” [Only relevant portions of sentence included in quote.] If the buyer is using a mortgage broker, it is possible that the buyer will not have decided on a specific “lender” before expiration of the application period (by default 5 days but often shortened). In that case, the buyer may be deemed to have waived the contingency, or at a minimum the buyer may need to get the seller’s written consent for a lender selected after expiration. If seller refuses to give such consent, then the buyer may have waived the contingency. Note use of the word “may” as the form is ambiguous and open to some interpretation on this issue.
One the second issue, however, the risk is clear. If buyer’s financing fails, then per paragraph 4 the buyer must present “written confirmation from buyer’s lender” of the date of application, that buyer had the funds to close (i.e. the down payment), and why the loan was denied. I think its safe to say that a declining letter from a mortgage broker would not satisfy this requirement given the specific definition of “lender” in the form. So don’t rely on a letter from your mortgage broker (as many buyers do).
The upshot? If you’re using a mortgage broker rather than dealing directly with a lender, discuss this issue with your broker to confirm that you will still get the protections of the contingency. Make sure the broker will have “applied” for a loan on your behalf with a specific lender prior to expiration of the application period. And if the application is denied, make sure you get a letter so indicating from the LENDER, not just your broker.