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BLOG / 06.01.17 /Jack Malley

Hon. Sabrina B. Kraus Orders Seller to Return Purchaser’s Down Payment

The recent decision in Gonzalez v. Char & Herzberg, LLP, 2017 WL 1031941 (Bronx County Mar. 13, 2017) concerned a dispute that frequently arises after a deal blows up – whether or not the purchaser has the right to recover her down payment. The purchaser agreed to purchase a single-family home located in Bronx County and delivered a $20,000 down payment to the escrowee. The contract of sale included a mortgage commitment contingency, which conditioned the purchaser’s obligation to close on a lender’s commitment to issue a $495,000 loan for a term of at least 30 years within 45 days.

A lender issued a mortgage loan commitment letter on the 45th day, which included the condition that the purchaser secure a fully executed contract for the sale of her current home prior to the closing. Three days later the lender issued a letter notifying the purchaser that the loan application was denied because she failed to meet the condition. The next day the purchaser’s counsel notified the seller that her mortgage application had been denied and requested the return of the deposit. The seller rejected the request and set a closing date several weeks later pursuant to a time is of the essence demand, which notified the purchaser that her failure to close would result in the retention of the down payment. The seller ultimately retained the down payment and sold the premises to a different buyer approximately four months later.

In her decision after trial, the Hon. Sabrina B. Kraus held that where a mortgage commitment letter is revoked, as was the case in Gonzalez, the purchaser’s right to return of the down payment “turns on whether the commitment revocation and consequent failure of the transaction was attributable to bad faith on the part of the [purchaser]”. Judge Kraus found there was no evidence of bad faith on the purchaser’s part in the record, and entered judgment for the purchaser in the amount of the $20,000 deposit plus interest.

The Gonzalez decision highlights a best practice to be followed by purchasers and their attorneys when a contingency has not been met – notify the seller in writing ASAP!!! Here, the purchaser’s counsel did just that, and as a result, the purchaser prevailed absent any evidence that she acted in bad faith.