Financing A Co-Op or Condo in NYC

 There has been a lot of talk in recent months about the evolution of the mortgage markets and the new obstacles buyers and sellers must confront.  On the street everything from mortgage contingencies to appraisals have become more complicated. Since we can’t control the banks today we are going to take a look at what we can control, the language of the contract of sale and how it relates to your financing.

Traditional Financing  Contingency

The traditional contingency allowed the purchaser to cancel the contract and recover the contract deposit only if they were unable to obtain a commitment letter within a certain amount of time. Once upon a time a buyer applied for a loan, got a commitment letter within a week, the appraisal came in right at the contract price and then a few weeks later the deal closed. This is no longer the case. It is now harder to obtain loans, lenders are less likely to grant loans and therefore more has to be done to protect your interests on both the buy and sell side.  Just last week we had a great talk at PDE on the Upper West Side from Friedberg, Cohen, Coleman and Pinkas.  They came up the tips below on how to protect your money.

What is a funding contingency?

This eliminates all risks associated with financing and protects a purchaser in the event the lender becomes insolvent, is put into receivership by the federal government and is effectively no longer conducting business.

Sample Funding Contingency: “If the purchasers institutional lender or licensed mortgage broker, through no fault of purchaser, fails or refuses to fund the loan it has committed to make pursuant to the loan commitment letter than purchaser shall:

i. Have the right to cancel the contract and receive the deposit back; or

ii. The original contingency period shall commence again and purchaser agrees to reapply with a second loan application with another lender or a lender of sellers choosing based on the same terms and conditions of the original contract.

How do you protect a qualified buyer who is pre-approved?

Add the Following Conditions to the Traditional Financing Contingency:  

i. Subject to project/ building approval

1. Insurance

2. Fidelity Bond Coverage

3. Sublets

4. Sponsor owned units

5. If new construction- percentage of units closed

6. Third party investor approval

7. Interest rate expiration resulting in and excessive rate which disqualifies borrower

Helpful Tips for Everyone

1. Thorough review of commitment letters
2. Review all conditions listed by the lender
3. Satisfactory appraisal
4. Satisfactory building project review
5. New construction
6. Review expiration date of the commitment letter and lock in date of loan
7. Purchaser should agree to apply to a second lender if declined by intial lender
8. Purchasers should agree to post an amount equal to one years maintenance charges in am escrow account with the co-op

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