Leverage, in the Last Contingency

APR 18, 2013 2:59pm ET

WE’RE HEARING about New York attorneys negotiating the terms of the mortgage contingency in residential real estate contracts. One must remember it is all in the details especially when you involve attorneys. From my review of the particulars in these contract haggling situations it reminded me of why Realtors are not too fond of attorneys. Namely, attorneys are perceived as deal killers as opposed to deal makers.

The fact that the terms of a mortgage contingency clause in a contract are being negotiated is actually a good sign for the market in general. It means that a seller is actually gaining some leverage over the proposed transaction. The seller is not simply thrilled to have someone interested in wanting to purchase their home. Rather the seller is now balancing the concern that a buyer will not qualify for a mortgage against the time that their home comes off the open market and another better buyer or offer is lost.

Some of the expressed concerns I noted were the perceived extra time it could take to get an FHA loan as opposed to a conventional loan and representations about the buyer’s ability to qualify for a mortgage loan. In many states where attorneys are not involved in drafting and negotiating a residential real estate contract the terms of a mortgage contingency are typically short and sweet. Maybe the term of the loan is expressed knowing it is easier for a buyer to qualify for a 30-year term as opposed to a 15.

Well not so in New York. I have seen mortgage contingency clauses in New York which are longer than entire contracts in other states. Why? Because in the Big Apple people litigate a lot and occasionally a seller will end up keeping a buyer’s large contract downpayment when the buyer defaults under the contract.

Speaking of New Yorkers who like to litigate, I also heard about an attorney whose client was basically looking to weasel out of paying a full commission to their Realtor. Imagine that? Apparently the listing agreement between a Realtor and a home seller had expired. The Realtor then finds a prospective buyer for the home, shows the home and an offer is made. The Realtor did not get the seller to agree in writing to pay a commission. Fortunately for the Realtor a signed agreement is not required in New York to earn a sales commission although it is highly recommended.

Without a signed agreement the Realtor would need to sue the seller for their commission. This takes time and money and usually an attorney. This particular seller was using their attorney for leverage to negotiate and reduce the Realtor’s commission. This negotiation is not going to help the overall attorney Realtor relationship in our society. Remember biology in high school? I think they would call this a symbiotic relationship.

For whatever reason the attorney mortgage broker relationship does not have the same edge to it. Maybe this is because when this relationship starts the contract is already in place. All that is needed is a mortgage loan and good service.

Based in Chelsea, Mich., John McDermott is a real estate and elder care attorney who represents both consumers and businesses. He can be emailed at jamcd@comcast.net.

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