Tonight the well-known consumer reporter Tappy Phillips of WABC’s 7 On Your Side covered the story of a couple who entered into a purchase agreement on a co-op with a mortgage contingency clause that made the deal subject to the lender providing a commitment letter. I was interviewed briefly saying that most contracts in our market are being signed with mortgage contingencies.

The buyers got a commitment letter from the lender but at some point the lender changed their mind after discovering the co-op was subject to a ground lease.

The seller decided to keep the downpayment because the buyers did get a commitment letter and the down payment would help defer the loss of value on the property during the time the property was under question. The seller did not appear in the segment.

Several thoughts come to mind after hearing this segment:

* Based on this presentation, the seller focused on their technical interpretation of the contract – morality and empathy took a back seat to money.
* The buyers can’t afford to fight to get the money back.
* Never underestimate the need for a good attorney – contract boilerplate sounds impressive to us laymen but it may be not protective, especially now in a weak market.
* Why isn’t the lender culpable in some way? In other words, aren’t we playing with semantics by calling a “commitment letter” a “commitment letter”, when in fact, they aren’t “committed” to lending if they find something wrong later on? They don’t have any skin in the game.

If the commitment letter was called a “a huge bag of donuts list” instead, would this situation still exist? Or is it more complex than that?

We are starting to hear about funding contingencies to protect the buyer if the lender doesn’t show up at closing.

There will be more of these types of situations going forward in weaker market. It shouldn’t make anyone scared to buy property – they simply need to upgrade their appreciation for the quality of professional advice.

I hope this story has a happy ending.


  1. Edd Gillespie June 17, 2009 at 1:46 am

    From the perspective of market value. if it is indeed “usual” that loans are not available in rented site situations it would seem the seller might have known he had a “white elephant.” Seems to me the real estate agents involved should have known as well, and then said something. But I guess after the San Diego case fiducial duties of real estate agents are extinct and buyers and now borrowers are on their own.
    Guess we’ll find out what the definition of “commitment” is. Maybe we should never assume we know anything for sure.

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