ContractsProf Blog

Editor: Myanna Dellinger
University of South Dakota School of Law

Friday, March 21, 2008

The Mortgage Contingency Clause: A Nice Example of a Condition

When teaching the law of contract conditions, I find that the mortgage contingency clause contained in most residential real estate contracts is a palpable example.  A simple and recent New York Supreme Court case provides a ready illustration.

Plaintiffs/sellers contracted with defendant/buyer for the purchase of real estate.  Buyer deposited $35,000 in escrow with the sellers' attorney.  Sellers were ready, willing, able to close on the date provided in the contract.  However, buyer's attorney informed the sellers that the buyer would not be appearing at the closing because the buyer did not have a valid mortgage commitment in place.  The buyer requested return of the down payment.

Sellers brought suit seeking summary judgment in lieu of complaint, relying on the contract of sale.  Buyer cross-moved for summary judgment, pointing to the contract's mortgage contingency clause.  The clause provided that the obligations of the buyer were conditioned upon the issuance of a written commitment on or before "45 days from date hereof."  The paragraph provided that, if the commitment was not issued within that time,"then either party may cancel this contract by giving notice to either party . . ., in which case the contract shall be deemed canceled. . . ."

The court granted the buyer's cross-motion for summary judgment, holding:

[T]he defendant, has demonstrated that she made a good faith attempt to obtain a written commitment. The mortgage contingency clause contained in the contract provides that the purchaser shall (a) make prompt application to a lender for a mortgage loan, (b) furnish accurate and complete information as required, (c) pay all fees related to the application and loan, (d) pursue such application with due diligence, (e) cooperate in good faith with the lender, and (f) promptly give notice to the seller of the name and address of each lender that the purchaser has made an application to. The defendant has demonstrated compliance with such terms.

* * *

As the defendant was unable to obtain a mortgage commitment with due diligence, and notified the plaintiff accordingly prior to the closing date, the contract was deemed canceled and therefore, the defendant is entitled to a full refund of her down payment.

Buyer was awarded the return of her down payment.

Schwiesow v. Werner (NY Supreme Court, Nassau County) (Friedman, J.)

[Meredith R. Miller]

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