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Do I have a case to litigate and pursue a co-op seller to return the escrow deposit?

New Hyde Park, NY |

The seller attorney has taken a $18,000 deposit and will not return it.
The co-op board approved my application. Chase bank had given me a commitment letter. However, the bank would not accept a flip tax of over 5%. This co-op board demanded a tax of 15%. I have not been able to find any bank that is willing to approve this rate. In addition, the fidelity bond of this co-op does not qualify for the bank’s standards.
At this point, the seller is indicating that I have breached my Contract of Sale by not being able to close by a certain date and they are now taking the deposit as liquidated damages.
Would I be able to demonstrate that the seller and co-op board presented me with a "no-win" situation in light of the exorbitantly high flip tax that no bank would accept?

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Attorney answers 7

Best Answer
Posted

Dear would I be able to demonstrate?

Your transaction attorney should explore all available options to resolve the contract dispute. If not resolvable by a negotiation, your final option is sue for the recovery of the contract deposit.

The attorney for the seller holding the deposit is considered an escrowee. If the seller declared you in default for the bank's failure to fund, his responsibility is to notify you that his client, the seller, has declared a default and requested the release of the contract deposit to the seller.

You and your attorney would respond by stating that purchaser is not in default as the funding was refused due to the bank's technical objections to the cooperative's rules and fidelity bond. The contract likely provided for this contingency, and if so, the purchaser is not in default.

Once you and your attorney declared your objection to the seller's claim, and you are not able to resolve the issue, some person involved in the transaction will need to commence a lawsuit.

You and the seller will quickly realize that a litigation over entitlement to an $18,000 contract deposit may be more costly than compromise, or the seller giving up the claim. Courts are not easily inclined to hold a purchaser in default if the "bank' is the problem.

Good luck.

The answer provided to you is in the nature of general information. The general proposition being that you should try to avoid a bad outcome if you can.

Asker

Posted

Thank you for your quick and comprehensive reply. Upon very careful reading of the contract (something I should have done initially, but neglected to do so because my own lawyer told me everything was fine), it seems there is a contingency clause that states verbatim: "In the event the purchaser's lender fails or is unable to fund the loan, or fails to close for any reason, and said failure is not result of any willful act of purchaser, purchaser shall be entitled to either terminate this contract and receive a return of the down payment hereunder or seller and purchaser mutually elect an adjournment of an additional 30 days in order to attempt to obtain financing from another lender. In the event purchaser is unable to obtain financing from another lender, either seller or purchaser may terminate the contract and return purchaser's contract deposit." However, this clause was crossed out with a strikethrough on the original document. Putting 2 and 2 together, this seems like a rather deceptive tactic employed by the seller. This may hold especially true if the seller is aware of the fact that many of the local banking institutions all do not accept such a high flip tax.

Steven Warren Smollens

Steven Warren Smollens

Posted

Hello. That is the main body of the contract. Often if deleted, the rider to the contract provides a more comprehensive provision for the failure to fund. Discuss with your attorney. Good luck.

Posted

If you had a lawyer representing you on this purchase he should be the one to advise you. If he does not do litigation, then at least he will know the facts as to whether the contract provides for return of the down payment. It sounds like the commitment was conditional, but the facts and contract must be further examined. The best answer I can give to you is 'maybe."

I do NOT know you. I am NOT your lawyer. This answer is provided for the general public who may have similar queries. The answer provided is NOT definitive. I do NOT know all of the facts of your case and NO attorney-client relationship is established. Please do not use my answer to tell your lawyer what to do. Free advise is worth exactly what you are paying. Trust the lawyer who is charging you for his/her time and expertise. If you can no longer trust your lawyer, then hire someone else. I am always interested in new clients and business opportunities and would welcome your call or email to discuss matters further. For more information, please feel free to visit my website or schedule an appointment.

Asker

Posted

Thank you for your quick response. Upon closer examination of the contract, there was a clause that permitted return of the down payment in the event I am unable to secure a loan from the bank by the closing date (but only it is something out of my control, such as the present scenario). However, the clause was crossed out and I had signed with my own lawyer's blessing and approval for the contract. I guess I will be changing lawyers. Thanks again for your quick response. Happy Holidays.

Posted

Does the contract have a mortgage contigency clause? If YES, it sounds like you should get your money back. If NO, you are out of luck if you don't have the funds to close.

I am a former federal and State prosecutor and now handle criminal defense and personal injury/civil rights cases. Feel free to check out my web site and contact me at (212) 577-9797 or via email at Eric@RothsteinLawNY.com. I was named to the Super Lawyers list as one of the top attorneys in New York for 2012. No more than 5 percent of the lawyers in the state are selected by Super Lawyers. The above answer is for informational purposes only and not meant as legal advice.

Asker

Posted

As replied above, I seem to have found the contingency clause (or lack thereof). Thank you for your quick response. Happy Holidays.

Posted

Speak to your real estate attorney and have him advise you. Good luck.

If this answer is helpful, then please mark the helpful button. If this is the best answer, then please indicate it. Thanks. For further information you should see an attorney and discuss the matter completely. If you are in the New York City area, then you can reach me during normal business hours at 718 329 9500 or www.mynewyorkcitylawyer.com.

Asker

Posted

I will be changing lawyers (see above) Thanks for your quick response. Happy Holidays.

Posted

You need to file a lawsuit. In Nassau County, where it appears you are from, $18,000 puts it in Supreme Court. If in NYC, you are in Civil Court. I believe you have a claim for return. However, you are suing the seller, not the lawyer.

Posted

Mr. Rothstein is on point. I had 2 cases with exact same facts recently. RE deposits in NY are strictly designed to keep an option to buy for the proposed buyer. Take a look at the contract. Most have a mortgage contingency clause, and also, sometimes define what a "commitment letter" is, or is not. Many times, a commitment letter contingent on an appraisal etc, is not a "firm commitment letter".

Make sure your RE attorney reviews this and notifies the seller's attny of your rights to cancel the contract ASAP prior to the sellers making "time of the essence" demand.

Posted

If you have a lawyer get him/her to review your contract. If you don't have a lawyer, hire one. Usually most co-op contracts of sale in their financing provisions allow a buyer to cancel the contract and get back their down payment if any requirement of the Loan Commitment Letter other than one concerning purchaser is not met (e.g. financial condition of the Corporation, owner occupancy quota, reserves etc.). Have your attorney write a letter to seller stating that you complied with all the conditions of your mortgage commitment and are not in default, that the bank's failure to fund concerns the financial condition of the co-op corporation-- not you, and demand the return of your down payment. Courts do not look favorably on forfeiture of the down payment due to the bank's objection to the rules of the co-op corporation. Hopefully seller and their attorney will see the light before it gets to that point.

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