When you sign a contract to buy a NYC apartment, you're typically required to hand over 10% of the purchase price as a contract deposit. While most buyers understand that they may lose it all if they back out of the deal, many are unaware of other circumstances that can put their deposit in jeopardy.
Here are two ways you can lose your deposit permanently--or just temporarily, while you spend time and attorney's fees haggling with the seller to get it back:
1. The co-op board rejects you
No matter why you're turned down by the board (and you may never learn why), a seller can argue that he or she is entitled to keep your deposit because you failed to make a good-faith application.
This means you must be scrupulous about filling out your application down to the least detail, preparing for the possibility that a frustrated seller may seize on any reason to keep your deposit, including:
- Incomplete or incorrect information
- Your failure to timely submit the board package as per the contract
- Not fully disclosing all assets
- Submitting an application in the name of a trust or an entity when the contract lists only an individual purchaser
- Requiring that certain alterations be made to the apartment (meaning that as a condition to approval, the cooperative must also approve your plans to alter the apartment, unless the contract of sale permits such a request)
2. You can't get a mortgage
Even if your contract has a financing contingency--a provision that allows you to walk away with your deposit if you don't successfully obtain a mortgage--it may not be worth the paper it's written on if the seller can claim that you did something not allowed under the contract when you applied for a mortgage. Examples include:
- Applying for an FHA loan when the contract specifically prohibits it
- In new construction, applying to a non-preferred lender (developers frequently require buyers to use so-called 'preferred' lenders who've already pre-approved the building)
- Applying with a co-borrower who is not a purchaser--and has bad credit
- Asking for more than the amount listed in the financing contingency--for example, a loan for 90% of the purchase price instead of 80%
Sandor D. Krauss is the founding partner of SDK, a New York City real estate law firm specializing in residential and commercial real estate transactions.