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Current Developments in the Commercial Divisions of the
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Posted: March 24, 2018

If Mortgage Commitment Letter is Revoked, Question of Whether Mortgage Contingency Applies Depends on Reasons for Revocation

On March 16, 2018, the Fourth Department issued a decision in Md3 Holdings, LLC v. Buerkle, 2018 NY Slip Op. 01836, holding that if a mortgage commitment letter is revoked, the question of whether the mortgage contingency applies depends on the reason for the revocation, explaining:

Defendant contracted to purchase plaintiff’s commercial building in the Town of DeWitt, Onondaga County. The contract included a standard mortgage contingency provision, and a bank subsequently issued defendant a conditional mortgage commitment letter. After receiving the mortgage commitment letter, however, defendant provided the bank with additional projections from his accountant that cast doubt upon the financial viability of the planned use of the building. Upon reviewing the accountant’s analysis, the bank determined that defendant’s project will be reliant upon the speculative acquisition of an acceptable tenant, and it revoked the mortgage commitment. Without financing, the sale could not close.

. . .

When a mortgage commitment letter is revoked by the lender after the contingency period, in contrast to the failure to obtain a commitment letter in the first instance, the contractual provision relating to failure to obtain an initial commitment is inoperable, and the question becomes whether the revocation was attributable to any bad faith on the part of the purchaser. Thus, where a mortgage commitment is revoked in the absence of bad faith on the part of the purchaser, performance of the contract is excused and the purchaser avoids the unenviable position of either having to proceed to closing without financing, or to risk forfeiture of the down payment. Notably, the fact that a mortgage commitment was revoked based on new information supplied by the purchaser does not, by itself, establish that he or she acted in bad faith. Here, plaintiff failed to establish as a matter of law that the lender’s revocation of the mortgage commitment was attributable to bad faith on the part of defendant, rather than to defendant’s efforts to honor his duty of fair dealing to the bank by providing it with further information regarding the proposed transaction.

(Internal quotations and citations omitted).

We frequently litigate disputes over the purchase and sale of commercial property. Contact Schlam Stone & Dolan partner John Lundin at jlundin@schlamstone.com if you are involved in a dispute regarding a commercial real estate transaction.

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