Mortgage lenders demand last-minute post-Sandy inspections. Could buyers lose their deposits?
Memo to anyone currently in contract to buy or sell NYC real estate: Mortgage lenders, concerned over potential damage to apartments and apartment buildings in NYC, are requiring that property--particularly the building itself--be re-inspected before deals can proceed post-Sandy.
Anything in the building that could be a danger to health or safety must be corrected, even if it's not in the control of the seller, Jeffrey Appel, a mortgage banker at Citibank tells BrickUnderground.
So far, he said, the requirement had not presented much of an issue for his clients.
"In my pipeline of business, which is mostly focused on Manhattan, I've had perhaps 20 to 30 reinspections in the past week," he says. "It delays closings by a few days or a week, but so far, we haven't had any deals affected."
We checked in with a closing attorney as well.
"All of the major banks that I see are having reinspections done," says real estate attorney Adam Stone of Regosin, Edwards, Stone & Feder.
So what happens to your deposit if the building flunks the inspection, the seller is unable to fix the problem, and the bank pulls your financing?
There are two scenarios under you could keep your deposit, says Stone.
The first depends on whether you negotiated a 'funding contingency' into your contract, which provides that if the lender refuses to fund the mortgage for any reason not having to do with the buyer, the buyer is entitled to keep their deposit, says Stone.
In the second deposit-return scenario, most standard sales contracts contain a "Risk of Loss" provision that gives buyers the right to cancel the contract under certain circumstances including being unable to access the apartment, says Stone. The exact details vary according to whether you're dealing with a co-op or condo, and whether the provision was changed during contract negotiations, he says.
Brokers are already murmurring that it's likely that some buyers in contract for units in damaged buildings may hightail it out with their deposits or reopen price negotiations.
But not all buyers will.
Stone said a client of his was supposed to close last week on a condo at 88 Greenwich, a 38-story, 450-unit luxury building which has been declared uninhabitable while it undergoes a major cleanup that, according to CurbedNY, may take anywhere from one to four months.
Stone's client didn't flinch, and the reinspection report has yet to be issued. For now, all systems are go.
"He still wants the apartment and is willing to wait until [the cleanup] gets done," says Stone.
Related:
What now? A post-Sandy guide to your rights as a refugee renter or owner
Sandy has New Yorkers rethinking/restrategizing on waterfront properties
Yes, you are still nuts to buy without a mortgage contingency
