Breaking The Residential Real Estate Contract and Loss Of Down Payment.

One of the most difficult conversations with purchasers and seller's of real estate is in advising the respective parties that a breach of contract may result in the loss of one's down payment. The down payment is significant and generally 10-20% of the sales price of the contract. The New York Times has an article discussing this with several real estate experts.

The Mortgage Contingency

Most Real Estate Contracts contain a "Mortgage Contingency", which permits the purchasers to a refund of the down payment if the mortgage lender will not furnish mortgage funding due to know fault of the purchasers. Most often the mortgage contingency is not satisfied if the appraised price of the property by an independent appraiser values the property for less than the sales price. In this event many contracts permit the seller at his/her discretion to lower the sales price to the amount in the appraisal report, permitting the contract to move forward.

Top Reasons Purchaser May Get a Refund of the Down Payment.

1. Unsatisfactory Appraisal. ( Appraised Price Less than Contract Sales Price)

2. Cooperative Apartment Unit- Lender denial to fund based upon review of financials of Corporation and or Sponsor Controlling Percentage Ownership of Units is unsatisfactory to lender.

3. Changes Financial Circumstances of Purchaser. ( Loss of Income, Employment)

4. Title Inability to Convey ( Cloud on title, Governmental Violations, Encroachments etc.)

5. Denial of admission Co-Op's, to a prospective purchaser ( generally post closing Income Percentage/Wealth analysis subjective Board requirements)

6. FHA/SONYMA Governmental loans requiring "safety" issues in the condition of the property to be remediated/repaired and seller refuses to do so consistent with monetary terms of contract.

Top Reasons Purchaser May Risk /Forfeit Down Payment.

1. The Purchaser fails to act in good faith in furnishing his lender with all financial documents in a timely manner. Additionally, not submitting to the lender all proof of income/sources of income.

2. Purchaser fails to sell existing real estate and is unable to finance the purchase of the new home.

3. Fraud in Income, which may also be Criminal and Investigated by the FBI.