MORTGAGE COMMITMENT DOES NOT BIND PURCHASER BECAUSE OF CHANGE OF FACTS IN CREDIT REPORT
The Appellate Division, Second Department ruled that potential home purchasers could cancel their contract of sale without losing their down payment based upon a change in facts stated in a credit report. In Zellner v. Tarnell, the parties entered into a contract of sale for a one-family dwelling which contained a mortgage contingency clause, conditioned on the purchaser’s receipt of a mortgage commitment within 30 days of purchaser receiving a copy of the fully-executed contract. The contract stated that “…(a mortgage commitment shall be deemed binding if it contains only conditions that are within the control of the Purchaser)….” The mortgage commitment obtained by the purchasers within the requisite 30 days stated that it could be “…withdrawn or revoked at any time (if there were)… a change in the facts stated in … the credit report.”
The Appellate Division ruled that a change in the facts stated in a credit report was not a “condition wholly within the defendants’ control. Consequently, the mortgage commitment was not binding under the terms of the contract,” and the purchasers could cancel the contract of sale without losing their down payment.
This ruling highlights the general rule that a contract of sale of non-income-producing property in which financing is involved should be made contingent not only on obtaining but also on closing under such financing.
