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Vincent J. Gallo, Esq.: "So, do you want to risk losing your down payment? Here is how to do it."

posted Apr 13, 2015, 4:42 AM by Pete Weinman
Han v. Furst, 2014 v NY Slip Op 04749 (118 AD3d 975) The Contract of Sale contained a 

mortgage contingency clause wherein the Purchaser was required to make an application to an 

institutional lender, to pursue the application with due diligence, and to cooperate in good faith 

with the institutional lender. The Court held that the Seller established, prima facie, that the 

Purchaser breached the Contract of Sale by failing to make an application to an “institutional 

lender”. There was evidence that the Purchaser made an inquiry to a mortgage broker, but the 

mortgage broker never submitted an application to a lending institution. Consequently the Court 

held that the Purchaser failed to comply with his or her obligation to submit an application to an 

“institutional lender”, thereby forfeiting their down payment as liquidated damages.

This case is important for a few reasons. An attorney representing a Purchaser should be 

extremely diligent in closely examining the precise language contained in the mortgage 

contingency clause, so as to not allow for a Purchaser to place himself or herself in harm’s way 

by failing to comply with his or her obligations therein, and thereby risking being held in default.  

Accordingly, if the precise language requires the applicant apply to an “institutional lender” and 

the borrower/applicant accepts this language, then apply to an institutional lender. If the 

borrower intends, or possibly intends to utilize the services of a mortgage broker, then he or she 

should be certain to allow for the inclusion of such language in the Contract of Sale, allowing for 

same, so as to not risk being held in default.

The Court was unclear as to how it would have held had the mortgage broker actually submitted 

an application on the borrower’s behalf to an “institutional lender”, and whether this would have 

sufficed for purposes of satisfying the mortgage contingency clause. Since the Court was not 

clear in this regard, one should not want to be the test case.  Accordingly, an attorney should be 

careful so as to craft the Contract language as to not place the borrower at risk of being held in