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The Way Out – Part One:The Opposite of Acceptance Is Rejection

7535_signsOK, the market is getting better, or so it seems for now.  Still in this economic climate skittish buyers have devised novel ways to get out of deals – from challenging floor plans to declaring the financial meltdown an Act of God, though it remains to be seen how many of these will succeed once they wend their way through the courts.

This reality raises anew the larger question of just what you can do to free yourself with impunity from the contractual bonds should the need arise. It’s always better to be prepared – for the next economic slide or even your own changed circumstances. If you’ve been reading, you know the fact that the market tanked won’t get you off the hook, not that plenty haven’t tried. (See, Hangover) But what possible outs are there – legal and imaginative – that have proven effective and may help you make a successful, if unexpected, exit. Today: breaking free from co-op contracts; next week: condos.

Act Fast: The standard apartment contract is not binding until it’s fully executed and delivered to each party. That spells opportunity. If you notify the seller that you are rescinding before the signed contract has been delivered back to you, it’s unenforceable and you get to keep your down payment. That doesn’t mean the seller will happily fork it over. So as added insurance you might consider putting a stop payment on the check (assuming it hasn’t been cashed), something that would normally put you in default, but won’t if you’re within your rights to cancel.

279494275v1_480x480_Front_Color-WhiteRent a Dog: It’s not as crazy as it sounds.  Within the past year, two buyers were rescued by their dogs, not that they necessarily wanted to be. But you can turn their adversity to your advantage. The buyer at an Upper East Side co-op listed her dog as an occupant on her application, but the board only gave permission for the pooch to be present part time. So she cancelled the contract and got back her deposit of nearly a million dollars, over the complaint of the seller who said she’d used the dog as a pretext.

And when another board rejected a buyer because it didn’t like her Great Dane, she was allowed to file a UCC Financing Statement protecting a claim for return of her deposit, despite the seller’s objection. Should you find yourself locked into a contract you want out of, showing up for your interview with a snarling pit bull just might do the trick.

Let the Bank Rescue You: The easiest way to get out of a deal is if the bank refuses to give you a loan, not generally something to be wished for, but if your object is rejection, not acceptance, a welcome surprise. Unless you’re paying all cash, you should insist on a mortgage contingency clause, which is standard in most co-op and condo contracts.  If despite your good faith efforts, the bank turns you down, you can cancel the contract and recover your down payment

There are things you can do to give yourself more wiggle room should the need arise. One is to specify in the contract the minimum loan terms that are acceptable to you.  That saved a buyer who wanted 80% fixed rate financing for 30 years, but only got a commitment for a 5-year adjustable rate mortgage for 75%. Even though the board approved his application based on that commitment, the buyer got to walk, together with his deposit, because those terms weren’t the ones that had been spelled out in the contract as acceptable to him.

Another way is to shift the risk. In the standard contract the buyer is stuck if his financial circumstances change after having obtained a mortgage. But today no one knows if they’ll have their job tomorrow. You can provide an escape hatch by adding a superseding rider that lets you cancel if your situation changes post-commitment. That’s what saved a Brooklyn buyer whose bank refused to fund the loan it previously had committed to because she lost her job  She walked away deposit in hand.

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