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Recent Real Estate Decision of Interest with Case Notes by Vincent J. Gallo, Esq.

posted Jul 1, 2013, 5:41 AM by Pete Weinman   [ updated Jul 1, 2013, 9:22 AM ]
Case Notes - by Vincent J. Gallo, Chair, RCBA Real Property Committee
Cheng v 117 Guy R. Brewer Realty LLC - 2013 NY Slip Op 30580(U) - March 15, 2013 - ocket Number: 18652/12
Judge: James J. Golia - NEW YORK STATE SUPREME COURT - QUEENS COUNTY  - A link to the case is HERE.

This decision is a classic example of parties to a Real Estate Contract being held to the precise terms of the Contract. In this case, the Purchaser failed to procure a written mortgage commitment within the time allotted under the term of the Contract of Sale, to wit: 45 days from the date of the Contract. As such, if the Purchaser failed to obtain the written commitment within the said 45 day time period, the Purchaser was obligated to give written notice to the Seller cancelling the Contract within seven (7) days following the said 45 day time period. Purchaser failed to do so. As such, the Court determined that the Purchaser no longer had the protection of a mortgage contingency, and Seller declared “time of the essence” on 24 days written notice. Meanwhile, Purchaser endeavoured to obtain a mortgage commitment from another Lender, and while obtaining a conditional commitment, it was, without the aid of the Seller, not “closeable”. Purchasers failed to close on the scheduled law date, and the Court held that the Purchasers thereby forfeited the down payment of $400,000.00 as liquidated damages.

This case is significant for many reasons: 1) it held that "a written agreement that is complete, clear and unambiguous on its face must be enforced according to the plain meaning of its terms", thereby holding the Purchaser to the precise terms of the writing; 2) it went on to acknowledge collaterally that a “conditional commitment” did not satisfy the mortgage contingency clause, while at the same time, by the Purchaser failing to satisfy the requirements of the Contract which was to cancel the transaction within seven (7) days following the 45 day contingency period, the Purchaser placed himself in jeopardy of no longer having the protection of a mortgage contingency, irrespective of the contingency as not having been satisfied by means of having only a conditional commitment; 3) twenty-four (24) days, under the circumstances, is a sufficient amount of time within which to set a law date, provided the declaration of the “law date” is made after the date set forth in the Contract; 4) the Seller had no obligation to co-operate with the Purchaser in the Purchaser’s quest to obtain a “closeable” commitment from another Lender, after the Purchaser’s conduct rendered the mortgage contingency as having been satisfied; and 5) re-iterating the first point, the Court found no reason to look beyond the precise terms and the obligations contained within the written terms of the real estate contract.

So what does this all mean? Seemingly, because a Purchaser failed to obtain a written and firm commitment, and by <his attorney> failing to give the requisite notice within the time frame clearly allotted under the terms of the Contract, the Purchaser thereby forfeited the sum of $400,000.00. So what does this mean for the attorney? Since the attorney is, no doubt, chargeable with having to give the requisite notice, the next target will, no doubt, be the attorney.

A lesson to be learned? Endeavour to “steer away” from any clauses in a Contract that impose a time constraint which only ultimately place the attorney in jeopardy of being held accountable for “office failure”. The alternative? The Purchaser <Purchaser’s attorney> should have sought to have removed from the Contract the seven (7) days predicate notice, and instead, following the 45 period, give the Seller the right to cancel the Contract and return the down payment. This would have at least returned all parties to the status quo ante. The Purchaser could not have had an issue with this clause because it was the Purchaser’s failure to satisfy the mortgage contingency within the said 45 day period that led to their “losing the deal” in any event.

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A link to the case is HERE.

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