Mortgage Woes: Can I Lose My Deposit And The Property?

In our last article, “Buyer Beware,” I made reference to a court ruling, Estrada v. Metropolitan Property Group, in which the Manhattan Supreme Court found that the purchaser/borrower who relied on the space measurements in the appraisal report did so at his peril. The appraisal, done for the lender, did not relieve the purchaser/ borrower of his obligation to perform his due diligence. According to the court: “Plaintiff could have easily measured the apartment for himself.” The decision was affirmed on appeal.

Well what about a mortgage or loan commitment issued by a bank? Is there a difference between that and a funding commitment? According to Alfred M. Fazio, Esq., of the law firm, Capuder, Fazio, and Giaccoia, there is, “You have worked with a prospective purchaser for the past several months and finally your hard work has paid off because the purchaser has signed a contract and put down the required ten percent deposit. The purchaser has allegedly been pre-approved by a lender. Unfortunately for you and the purchaser, the commitment is anything but what it claims to be because it is subject to several paragraphs of requirements and conditions.”

What if one or more of these conditions have not been met, such as the purchaser’s employment status has changed. Is the purchaser entitled to get his deposit back? Again, let’s hear what Mr. Fazio has to say, “Pursuant to the standard form of a coop or condo contract or one to two family contract, a commitment which is conditional upon any factor other than an appraisal is considered a firm commitment and the purchaser cannot cancel the contract. Once a commitment is issued by the bank or mortgage company, if the bank does not complete the transaction for any reason other than a below market appraisal, the purchaser can be held in default and lose her deposit. The standard form of contract of sale contains a mortgage or loan contingency, not a funding contingency.”

North Fork attorney, William H. Price, Jr. advises, “The differing interests of the Seller and Buyer and the pitfalls facing both make it a necessity to thoroughly review the contract and your circumstances with your attorney.”

Ed Reale, Senior Managing Director, Brown Harris Stevens, Southampton, and New York attorney says, “The heightened scrutiny given lenders under the new ‘Truth in Lending Ability to Repay’ mortgage standards have imposed a heavier burden on borrowers to prove their qualifications for a mortgage, sometimes right up to the time of closing.”

A question may arise, if the seller gets to keep the deposit, is the seller’s broker entitled to receive a percentage of the deposit equal to the percentage of the sale price? Case law says, only if the listing agreement between the seller and the broker states that.

Mr. Fazio further advises, “If you are acting as a buyer’s agent, with the requisite fiduciary obligations, you are held to a higher standard and your involvement in the loan or mortgage process will determine whether you will be named in a lawsuit should the purchaser attempt to recoup his deposit from the seller.”

A lesson to be learned is, do not presume, based on logic, or what you might think is fair, and just. Seek the assistance of qualified professionals. The price you pay will be well worth the benefit.