Bank pulling out of financing commitment

I believe the standard purchase contracts for condos and co-ops put the burden on the buyer if the bank does not follow through on its commitment, assuming the buyer and the property met all conditions of the commitment letter. That is, the buyer loses his 10% downpayment. We just closed on a condo, but we had our lawyer change the standard language in the purchase contract to cover the case you mention, so instead of having 10% at risk, we only had about 1% at risk for the case of the bank not following through on the commitment when all conditions of buyer and property had been met. Thankfully, our bank came through for us and we closed. So, if you haven't signed a purchase contract yet, make sure you have a good lawyer, read the contract yourself, and make sure your lawyer drafts language that protects you. Good luck.

HB, does this have anything to do with having a mortgage contingency written into your contract?

In other words, having this condition means that the buyer is responsible for the full amount of the purchase price regardless of whether he/she is able to obtain a mortgage or if the unit is appraised below the purchase price.

There's been much discussion about this in relation to appraisals, but I'm wondering if it can apply to bank financing as well.

Well, the issue here is that the Bank pulls out after having given its commitment. This is happening in today's mortgage market, with banks being very cautious on lending. However, this leaves us (the buyer) in a precarious situation, since buyer is normally given 30 days after the notice from the building to close the mortgage or else lose the deposit. In these tumultous times, having already wasted 2 weeks with one bank only to find out that they cannot close, leaves too little time to seek another bank in time to meet the deadline.

Of course, if you lose the deposit, one can try suing the bank that pulled out from their commitment letter. Most "mortgage contingency" clauses only specify getting "commitment letter" from the bank. So if you receive "commitment letter" from the bank, you have lost protection under the mortgage contingency.

I had a mortgage contingency and was told if I didn't get a mortgage, I would only lose my 10% downpayment. I recently purchased another property (with no mrtgage contingency), where I did get a commitment letter from the bank and subsequently received a mortgage denial letter. The next day; with it now being a week before closing, I was fortunate enough to contact another bank which gave me the mortgage and was able to close as scheduled. I was informed that the bank prob denied my new mortgage b/c I already held an outstanding mortgage with that bank.

Assuming that the commitment letter is a contract of its own - in theory you could mitigate (get another mortgage) and then sue the bank for the change of interest rate. Under New York law you might not be able to get special (or consequential) damages - the loss of your deposit.

This nearly happened to a client of mine last year during the credit crunch. The lender did everything it could to not honor the commitment, including calling for a last-minute reappraisal, changing the rate at the last minute, and funding the loan late. It took a lot of behind-the-scenes work to keep the deal together.

A lot of the credit goes to the mortgage broker, and in my mind, it's one big screaming reason to use one. A lender is a lot more scared to screw over a mortgage broker, who is a repeat customer, than it is to screw over an individual.

ali r.
{downtown broker}

Most financing contingencies that I've seen make the contract contingent (for a period of time) on getting a financing commitment. So, if the bank issues a commitment and then doesn't honor it, the buyer would be left on the hook. Hopeful_Buyer showed excellent foresight in shifting this risk to the seller; in this market it seems like the prudent thing to do and sellers are going to have less leverage to resist.