Should we sign without a FUNDING contingency?

My husband and I are currently negotiating our contract with the sponsor and have run into a problem with our contingency clauses. We have a financing contingency, protecting us if we don’t get a loan based on our financial situation and an appraisal contingency. However, the sponsor will NOT budge on a funding contingency, which would protect us if the bank declines a loan based on the building. Our loan officer says he can tell us confidently that there is a 90% chance we will get the financing. The other 10% would be due to a weak financial building or owner occupancy way below the limit. Given Citi has already reviewed the financials (and he knows they have) that will not be an issue. A family member also lives in the building and she had no problem obtaining a loan when she bought her apartment a year ago. However, our lawyer strongly advises us against signing without the funding contingency. He says this is a standard clause that most people have in their contracts. Any advice? Also, is it safe to assume that if the bank won’t loan to us because of the building, the sponsor will get to keep the 10% we put down at signing?

mcurren

in Co-Op Related 12 years and 2 months ago

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dylan621 | 12 years and 2 months ago

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I would have thought that you would not get a committment letter from the bank if they don’t approve the building so your financing contingency wouldn’t be triggered and rejection of the building would get you out of the contract. Or at least your committment letter would be conditional on the bank’s approval of the building. Did you already get a FNMA waiver for the under 51% owner occupancy and ongoing litigation? If not, that’s not something your bank has ultimate control over.

adam_dahill | 12 years and 2 months ago

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under 51% owner occupied on a coop and you are doing no contingency? I would be worried.

slopette | 12 years and 2 months ago

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Can you raise your offer or cover more of their closing costs in exchange for them removing the clause? It seems so bizarre but you’re obviously committed to the building. We’re buying into a similar building right now but the sponsor made no such demands.

mcurren | 12 years and 2 months ago

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It does seem strange that they would allow a financing contingency but not a funding but they claim that that is their policy and always has been.  Perhaps it’s because the coop is under 51% owner occupied, but is getting closer to 51%.  I’ve been following this building for over a year now and every unit on the market has been sold fairly quickly.  My sister bought there and had no problem getting financing.  I read over the board minutes a few weeks ago and my only concern is that a tenant is currently suing the management company, who has attempted to evict him because he was harassing another tenant.  Apparently this tenant is currently still residing in the building and the person he was harassing has since moved out.  She allegedly has concrete proof of his harassment – videos, photos, etc. so I doubt this tenant will be successful in his lawsuit but is this the type of thing that could hurt a building’s financial standing? Our loan officer (who my sister also worked with) thinks the risk is extremely low.  We already have a guarantee that they will fund the loan for the building and he’s working on obtaining another guarantee that they will loan for the specific unit.  Our lawyer said that this made him feel slighly more comfortable but that he’s also seen all these factors in play before and then something went wrong and the buyers didn’t get the loan and had to forfeit their 10% deposit. It’s such a tough call to make.  I’ve heard rumblings that a lot of sellers are pulling this no-contingencies move lately to try to shift the market back to a sellers market, so it would be incredibly frustrating to walk away for a perfect apartment just to go through the same thing with a few months later.

BobMarvin | 12 years and 2 months ago

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Why would the sponsors allow a funding contingency over matters out of their control (if you don’t get a loan based on your financial situation and an appraisal contingency) but not allow such a contingency for factors that are either under their control or, at least, for which they have inside information [a weak financial building or owner occupancy way below the limit]? I could see not permitting ANY funding contingencies at all, but the situation the OP presents seems to raise serious red flags. What does the sponsor know that the OP doesn’t know/

adam_dahill | 12 years and 2 months ago

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I’m not knocking Flatbush (also think it could be hot years from now) just that it’s not like one of these houses with 100 people at the open house that we’ve been hearing about for the past few weeks.

adam_dahill | 12 years and 2 months ago

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2 months? What’s been going on for the past 2 months? You could have closed by now and they are moaning about the funding contigency on a house in Flatbush?

mcurren | 12 years and 2 months ago

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We’re not in competition for the unit at all, which is why we’re so perplexed that they have repeatedly refused a funding contingency. It is a great apartment (reasonably priced, gut renovated, 1 1/2 bdrm) but it’s on the border of Flatbush/Lefferts Gardens, which is not exactly a hot neighborhood (yet). They accepted our offer two months ago and agreed not to show it to anyone else.  They have told our lawyer that they never offer funding contingencies.

adam_dahill | 12 years and 2 months ago

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I get this question at least once a week, just got it again today with another client. Basically I tell people that you have to be prepared to either pay all cash or lose the deposit. With inventory low this is only going to happen more and more. Realtors tell you that you need to make no contingency offers but I’m not one to gamble with a client’s down payment. No one can guarantee that you will get the loan and there are a multitude of reasons that a bank can deny the loan especially with a condo/coop/townhouse with questionable C of O and usage. Heck, you could satisfy all loan conditions and get laid off the week before you close and Wham no loan when the bank does the verification of employment a day before the closing. It’s happened. I’ve had clients even sign weird contracts on high end condos where the price would go up 100k if we didn’t close on the specified closing date. Guess what, the building was in a flood zone and the condo didn’t have enough flood insurance and wouldn’t increase it. The client had to buy his own and even then we had to go to 3 different lenders to find one that allowed it. We got it done but I think I lost a least 5 years off my life over the stress the realtor and attorney put me through by allowing such a contract to be signed without the full due diligence.

housebywe | 12 years and 2 months ago

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Its a risky gambit.  If you cant obtian financing, for whatever reason (many of which are variable and unpredictible), the sponsor can and, likely, will take your good faith deposit.  Its a question of your risk aversion–given the data points (bank has approved financials, owner occupancy has been approved, your own employment stability) it might be worth it to you to consider the favorable odds.   Also, is there intense competition for this unit?  It doesnt make sense that a seller wouldnt budge on removing the financing contingeny unless he/she was fairly certain the next buyer would be coming up with all cash or no-financing contingency (not unsual in this market).  If you happen to be bidding in a vacuum, though, it would be very strange for a seller to be insisting on this…unless he/she is already aware of some potential financing concern….