In residential real estate transactions throughout Queens and the greater New York City area, one of the most important clauses in the contract is the mortgage contingency provision. While it provides necessary protection for buyers, it also introduces uncertainty for sellers—and failing to understand its implications can delay or even derail a deal.
If you’re a home seller in New York, it’s essential to know what the mortgage contingency does, how it affects your transaction timeline, and how you can mitigate risk without scaring off qualified buyers.
What Is a Mortgage Contingency Clause?
A mortgage contingency clause allows the buyer to cancel the contract and receive a full refund of their down payment if they are unable to secure a mortgage commitment within a specified time frame—typically 30 to 45 days.
During this contingency period, the buyer must make a good-faith effort to apply for a loan, submit required documentation, pay any fees associated with the loan, and obtain approval. If the buyer is denied financing and provides timely notice, the contract is usually voided without penalty.
Why It Matters for Sellers
From a seller’s perspective, the mortgage contingency creates a holding pattern. You’ve taken your home off the market, but the sale isn’t guaranteed until the buyer obtains a formal mortgage commitment.
Here are the risks to be aware of:
- Delays: The buyer may require extensions, especially in a high-interest-rate or tight lending environment.
- Contract Termination: If financing is denied, the deal could fall through entirely.
- Lost Opportunities: While you’re under contract, you may lose the chance to entertain stronger offers or all-cash buyers.
Common Seller Concerns
- What happens if the buyer misses the contingency deadline?
If the buyer fails to provide notice of mortgage denial by the contingency deadline, the clause may be deemed waived. The buyer is then expected to proceed to closing regardless of financing. - Can I require a non-contingent offer?
Yes. Sellers may request that buyers waive the mortgage contingency entirely—particularly in competitive markets. However, this is typically only advisable when the buyer has strong financials or is paying in cash. - Can I keep the deposit if the buyer backs out?
Only if the buyer fails to comply with the terms of the contingency clause. If they follow the procedure properly and cannot secure a loan, the deposit is usually refunded.
How Sellers Can Protect Themselves
- Set a firm contingency deadline. Ensure the contract clearly states when the contingency expires and under what conditions it can be extended.
- Ask for pre-approval documentation. A serious buyer should have a recent mortgage pre-approval letter before you accept the offer.
- Negotiate limits on extensions. Sellers can allow only one extension or require proof of application progress before granting more time.
- Work with an experienced attorney. Your attorney can draft language that limits ambiguity and ensures deadlines are enforceable.
Seller Tip: Know the Difference Between “Commitment” and “Clear to Close”
A mortgage commitment is not the same as final loan approval. The commitment may still be subject to conditions (such as appraisal, verification of employment, or additional documentation). A savvy seller—and their attorney—should ensure the buyer’s obligations are clearly defined beyond just the issuance of a preliminary commitment. It is possible for a purchaser to obtain a commitment letter and still not be able to close because of not meeting one of the lenders conditions.
Conclusion
The mortgage contingency clause is a standard component of most residential transactions in New York, but it deserves careful attention. As a seller in Queens, and the greater New York City area, understanding how this clause works—and how to structure it properly—can help you protect your interests, avoid unnecessary delays, and keep your deal on track.
Before signing a contract, always consult a qualified real estate attorney to ensure your transaction is structured for a smooth and secure closing.
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