Today’s finicky credit markets are rendering mortgage contingencies a most common inclusion in purchase contracts. A mortgage contingency makes the buyer’s commitment to purchase the property conditional upon the ability to obtain financing (technically getting the bank commitment vs. the mortgage itself). This is particularly the case in Manhattan, where a great proportion of loans fall in the jumbo category ($729k+). Nowadays, having a contingency-free contract can be a fantastic bargaining chip in helping whittle the apartment price down further, such that the seller does not have to roll the dice on whether the buyer will or won’t be approved by the respective bank.
All of this drama is also adding to the time it takes to get from a signed contract to the closing table, a topic we have written about before. To further add to these delays, we are finding that buyers have to file extension after extension with the seller/sponsor’s attorney until that coveted bank commitment letter actually comes through. It can be a stressful time, to be sure. So what does a contingency expiry mean?
- Prior to the actual expiry date, the bank needs to write a declination letter stating that it will not, in fact, issue you a mortgage. This, in turn, lets the buyer off the hook and leaves the seller to refund the deposit.
- Should the bank not issue a declination letter prior to expiry, and/or should the seller not be notified about the declination, the buyer is deemed to have waived the contingency and is obliged to purchase the property in some way, shape, or form, whether it be all cash or via alternative means of financing.
- If an extension is not granted by the seller after the expiry, then the buyer must provide a bank declination letter to have moneys returned or purchase the property any which way.
The bottom line is to make sure that you’re aware of the deadlines involved, and maintain a fluid conversation with your broker and attorney to avoid finding yourself in a pickle.