I'm in contract on a new condo in Brooklyn with a tentative closing date of July 1st. The developer's attorney is demanding a full mortgage commitment by next week. I've spoken to several lenders who say a commitment with a closing date that far out is not possible. The developer does not have a preferred lender. How do I proceed and not lose my deposit?
"Very often, there are one or two approved lenders who meet all the requirements and have underwritten the building," says Craig L. Price, a partner with Belkin Burden Goldman. "In that situation, it is reasonable for the sponsor to tell buyers that they need to get financing and make sure they're good from the lender's point of view."
However, without a preferred lender, it can be quite difficult to get a mortgage on the timeline that this developer is requesting. When buying new condos that are still under construction, there can be delays in closing that pose challenges to securing financing within a long timeframe. Additionally, many lenders do not offer mortgages to buyers in new construction buildings until a certain percentage of the units have been sold. On top of that, there are also time limits—often 90 days—for locking in a mortgage interest rate.
Another important variable is whether you have signed a contract with a mortgage contingency clause. If there is one written into your contract, it will protect you from losing your deposit if you can't get a mortgage.
"If there is a mortgage contingency, it is prudent for a developer to make sure that the buyer can get a mortgage early in the process. That way the developer knows that the buyer is locked in," says Deanna Kory, a broker with Corcoran. "The majority of developers do not allow mortgage contingencies, but they then will have a preferred bank."
If you have a mortgage contingency, it will protect you until you secure financing, so you may decide you want to take your chances and proceed. Otherwise, your best bet is to speak to an attorney.
"If you feel the sponsor is going against the contract, you should first try to serve them with some kind of notice through the means provided in the contract," Price says. "And if the sponsor threatens to withhold the deposit, you could reach out to the Attorney General's office."
Most developers would prefer not to have any complaints filed against them with the Attorney General, given that they likely intend to undertake more projects in the future, so this may be a strong enough disincentive.
"Ultimately, it seems your instincts are correct that it's not reasonable to ask for a mortgage commitment at this point," Price says.
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