Down Payment Disputes When a NY Real Estate Transaction Does Not Close
When a New York real estate transaction fails to close, a down payment dispute may arise. The buyer and seller may disagree as to why the transaction did not close, and whether one of the parties was at fault, and breached the terms of the real estate contract. A down payment dispute may arise for various reasons, including:
•Purchaser’s Failure to Get Mortgage Commitment
•Title Defects
•Liens & Encumbrances
•Seller’s Inability to Provide Certificates of Occupancy, Certificates of Completion, etc
•Purchaser’s Failure to Get Co-op Board Approval
Who is Entitled to the Down Payment in a Failed Real Estate Transaction?
Sometimes, one party to a real estate contract is unable to complete the transaction for various reasons. The inevitable question in down payment disputes then arises–Should the seller’s attorney who is holding the down payment in an escrow bank account, return the down payment to the purchaser, or should the seller’s attorney release it to the seller? The answer to a down payment disputes depends on the language in the real estate contact, as well as the reason that the party is unable to close the transaction.
What Are Your Rights as a Buyer if the Seller’s Attorney Refuses to Return the Down Payment?
Our experienced New York real estate litigation attorney provides the following information regarding down payment disputes, to give you a better understanding of some of the issues that may lead to a dispute, or even litigation, regarding the down payment in a New York real estate transaction.
Our goal is to help you prevent disputes or litigation regarding the down payment in a New York real estate transaction. If however you are already involved in a down payment dispute in a New York real estate purchase or sale, the following discussion is meant to give you a general understanding of the issues that may be involved. If your dispute regarding the down payment cannot be amicably resolved, our New York real estate litigation attorney may be able to help.
A New York Real Estate Transaction Might Not Close for Various Reasons
Some of the reasons why a New York real estate transaction may not close are discussed below, any of which may lead to a down payment dispute.
Purchaser’s Inability to Get Mortgage Commitment
Although most New York real estate contracts do contain a mortgage contingency clause, some do not, so it is important to discuss this with your New York real estate attorney before signing the contract. For example, many co-op and condominium sponsors have no mortgage contingency clause in their contracts.
Assuming that your contract does contain a mortgage contingency clause, it is important that the purchaser comply with the terms of that clause. If the purchaser does not make a timely application for the mortgage loan, or applies for a mortgage loan in an amount greater than the amount in the mortgage contingency clause, the buyer may lose their right to return of the down payment in the event that the buyer is unable to obtain a mortgage commitment.
Similarly, the language in the contract may state that the issuance of a mortgage commitment letter is sufficient to satisfy the mortgage contingency, and therefore once the lender issues that mortgage commitment letter, if the lender refuses to fund the loan because the purchaser is unable to satisfy all of the conditions in the mortgage commitment, the purchaser might lose their right to return of the down payment. For example, the mortgage commitment might require the purchaser to sell their current home, or to pay off a car loan, or to satisfy some other requirement before the bank will fund the new loan. If the buyer fails to satisfy those conditions, the buyer might be in the difficult situation of having the bank refuse to lend the money, and yet not being able to get a refund of their down payment. If the buyer suspects that the lender might impose requirements such as the sale of a house, paying off a car loan, student loan, etc. as a condition to qualifying for the mortgage loan, is important that the buyer discusses this with their New York real estate attorney before signing the contract, so the attorney can make sure that mortgage contingency clause will properly protect the buyer.
Appraised Value of the Property is Less than the Purchase Price
Some real estate contracts provide that a purchaser’s obligation to complete the real estate transaction is contingent upon the bank’s appraisal of the property being at least equal to the purchase price. In those situations, the purchaser may be entitled to cancel the contract and receive a refund of the purchaser’s down payment if the property appraises for less than the purchase price.
Seller’s Inability to Transfer Marketable Title to the Property
Most contracts for the sale of New York real estate (including houses, condominiums, land, commercial property, etc.) require the seller to deliver good marketable title to the property, free and clear of any encumbrances, such as mortgages, real estate tax liens, mechanic’s liens, judgments, etc. The fact that there is an outstanding mortgage loan on the property is usually not a problem because typically the mortgage loan will be paid off at the closing by using part of the sales proceeds.
Sometimes the seller is also aware that there are real estate tax liens, mechanic’s liens, judgments, etc. on the property however the seller also intends to pay them off at the closing, using part of the sales proceeds. Depending on the particular circumstances, the seller may or may not be able to accomplish the intended result. For example, the total of all of the amounts due might exceed the purchase price. In that situation unless the seller is prepared to provide additional funds to satisfy all of the outstanding liens and encumbrances against the property, the seller is not going to be able to close the transaction. In that case, since the seller is in default, the transaction will be terminated, and the down payment should be returned to the purchaser. The purchaser might also be entitled to be reimbursed for some additional costs, depending upon the provisions of the contract.
The seller might however attempt to force the purchaser to give the seller additional time to negotiate with the lienholders, possibly including a lender who has commenced a mortgage foreclosure action against the property, in order to reduce the amounts that the seller has to pay in order to satisfy the liens. Depending upon the terms of the contract, the purchaser may or may not be required to cooperate with the seller. If the purchaser refuses to wait for the seller to negotiate with the lienholders, and the purchaser terminates the contract, there might be a down payment dispute.
Seller’s Inability to Provide Certificates of Occupancy, Certificates of Completion, etc.
Typically, the seller is required to deliver to the purchaser certificates of occupancy that conform to the structures on the property and their current use. In addition, typically the seller is also required to provide certificates of completion or other similar municipal certificates, certifying that additional structures and improvements have been approved by the municipal or town building department. Some contracts make this requirement an absolute obligation of the seller, where as other contracts may limit the seller’s required expense in obtaining the required certificates. Depending upon the language of the contract, the purchaser might be able to compel the seller to obtain the required certificates, or alternatively the purchaser might simply have the right to cancel the contract and receive a refund of their down payment, and possibly return of some other costs incurred by the purchaser.
Purchaser’s Failure to Get Co-op Board’s Approval
A contract for the purchase of a co-op apartment typically contains a provision stating that the purchaser’s obligations under the contract are contingent upon obtaining the co-op Board of Directors’ approval, and that if such approval is not obtained, the down payment will be returned to the purchaser. The purchaser will not be able to complete the transaction without the co-op Board of Directors’ approval. Nevertheless, in order to ensure that the purchaser, if not approved by the Board of Directors, will be able to obtain a refund of their down payment, is important that the purchaser comply with the terms of the contract regarding the approval process. For example, the contract will usually require that the purchaser submit all of the requirement documents to the co-op Board of Directors within a certain number of days after signing the contract. If the purchaser fails to submit the fully completed application in accordance with the co-op boards requirements, including all of the documents requested by the co-op board of directors, the purchaser may risk loss of the down payment, despite the co-op board’s rejection of the purchaser. Similarly, if the purchaser intentionally acts in such a way at the co-op board’s interview so as to ensure that the co-op board would reject them, the seller would have a legitimate basis for refusing to return the down payment. Differing opinions regarding the cause of the co-op Board’s rejection of the buyer may cause a down payment dispute.
Litigation Regarding the Down Payment
Disputes sometimes arise when a New York real estate contract is terminated, regarding who is entitled to the down payment. Sometimes down payment disputes are the result of unclear language in the contract regarding the mortgage contingency, seller’s obligations regarding good marketable title, certificates of occupancy, appraisal, or co-op board approval. Often, down payment disputes are the result of differing interpretation of the facts, such as whether the purchaser complied with the mortgage contingency clause, or whether the purchaser complied with the co-op corporation’s requirements for obtaining the co-op Board of Directors’ approval.
When a down payment dispute regarding a New York real estate transaction cannot be amicably resolved, the result is usually litigation. Our New York real estate litigation attorney represents buyers or sellers in down payment disputes. Litigation regarding which party is entitled to the down payment often involves interpretation of the relevant contract provisions, legal precedent established in prior similar court cases, and issues of fact such as whether the purchaser acted in good faith in attempting to obtain the mortgage commitment or the co-op board approval.
Interest on the Down Payment
In a New York real estate contract down payment dispute, if the court determines that the purchaser is entitled to return of the down payment, the purchaser may also be awarded interest on the down payment from the date of the seller’s breach of the contract.
Will the Winner’s Attorney’s Fees Be Reimbursed?
Regarding attorney’s fees, if the contract provides that the party who wins a court case arising out of a breach of the contract of sale is also entitled to attorney’s fees, then the court will probably award attorney’s fees to the prevailing party. If however the contract is silent on the issue of attorney’s fees, under New York law, attorney’s fees are not usually awarded by the court.
Contact Our New York Real Estate Litigation Attorney
To tell us about your down payment dispute regarding a New York real estate transaction, please either click Contact Us, or call our New York Real Estate Litigation Attorney at (212) 571-6848 for a free telephone consultation about your New York real estate down payment dispute.