The Mortgage Contingency Clause in New York: A Love Story. By Daniel Gershburg, Esq.

One of the most important parts of a Real Estate purchase in Brooklyn is the Mortgage Contingency Clause. Learn more about it here.

One of the main differences between buying a piece of real estate in Brooklyn now, versus four years ago, is the Mortgage Contingency Clause.  

In plain terms (and so you won't fall asleep face-first onto your keyboard), the mortgage contingency clause is a standard part of a real estate contract of sale in New York.

It states, in one way or another, that if your lender doesn't approve you for a mortgage, then you're able to receive the return of your down payment from the seller. But, from the time you receive a mortgage commitment, there is still a period of time that you must wait before the bank will actually fund the loan. And its during that time (typically a few weeks or so) that things can go awry.  

Think of this as proposing to your significant other. If he or she says "yes," that's a commitment. But you're not officially married until the wedding, think of this as the funding of the loan. The gap between those two times, the verbal agreement and the actual commitment, is the really dangerous part, for the commitment can be broken at any time. You can find out our fiance is deep in credit card debt, or that they are currently dating a freelance writer or "entertainer" or whatever. This is same for your bank, especially these days, the commitment can be broken before the loan.  

It's dangerous because, around 2008 banks started failing and they stopped lending money. They were going out of business and did would not loan out money if they simply no longer deemed you credit worthy. And then what? Now you're in this gray area and you have tens of thousands of dollars on the line.

Here's where we come in. In any deal where we represent the purchaser, we add additional contractual language which protects the purchaser(s) in case the bank doesn't want to lend you the money it promised. In other words, we tailor the contract to state that EVEN if you have this commitment, if the bank doesn't fund for any reason whatsoever, you get to back out of the deal and get your money back.  

Many attorneys on the other end are okay with this and agree. Some, however, will say that they do not want to be responsible for holding someone's deposit for months if that person decided to buy a car and their credit score dipped and now they're not funded. This has killed some deals already and it surely will going forward. But maybe it also saved a lot of money. Maybe it saved unnecessary litigation.

You want to make sure, as a purchaser, that you're protected by this type of language. You want to make sure, if you're buying a house/condo/coop in Brooklyn, that you have this language in your contract of sale. It could literally mean the difference between getting tens of thousands of dollars (or maybe more, you baller you) back into your account.  

Don't overlook this!

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