NYC Co-op Board Rejection and Your Contract Deposit: What Happens?

A buyer who is rejected by a NYC co-op board is customarily entitled to a full refund of the earnest money contract deposit. The typical contract deposit in NYC is 10% of the purchase price, payable upon contract signing and held in escrow by the seller’s attorney until closing.

The only scenario under which a prospective purchaser is not entitled to a refund of the contract deposit after a board rejection is if the buyer acted in bad faith. Potential examples of bad faith include:

Buyer intentionally submits an application with errors or omissions
Buyer makes an untruthful statement in the application or supporting documentation
Buyer does not submit the application within the timeline stipulated by the contract
Buyer decides not to pay the fees associated with the board application
Buyer refuses to furnish additional documentation requested by the co-op
Buyer declines to attend the co-op board interview
Buyer intentionally fails an interview by misbehaving, lying or refusing to answer questions

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The standard co-op contract used by most real estate attorneys in NYC contains an unconditional board approval contingency which protects a buyer’s contract deposit in the case of a board rejection or an approval subject to conditions.

This stock contract is published by Blumberg and developed by the Committee of Condominiums and Cooperatives of the Real Property Section of the New York Bar Association.

Here’s the language from Section 6. Required Approval and References:

6. Required Approval and References

6.1 This sale is subject to the unconditional consent of the Corporation.

6.2 Purchaser shall in good faith:

6.2.1 submit to the Corporation or the Managing Agent an application with respect to this sale on the form required by the Corporation, containing such data and together with such documents as the Corporation requires, and pay the applicable fees and charges that the Corporation imposes upon Purchaser. All of the foregoing shall be submitted within 10 business days after the Delivery Date, or, if ¶ 1.20.1 or 1.20.2 applies and the Loan Commitment Letter is required by the Corporation, within 3 business days after the earlier of (i) the Loan Commitment Date (defined in ¶ 1.21) or (ii) the date of receipt of the Loan Commitment Letter (defined in ¶ 18.1.2);

6.2.2 attend (and cause any Proposed Occupant to attend) one or more personal interviews, as requested by the Corporation; and

6.2.3 promptly submit to the Corporation such further references, data and documents reasonably requested by the Corporation.

6.3 Either Party, after learning of the Corporation’s decision, shall promptly advise the other Party thereof. If the Corporation has not made a decision on or before the Scheduled Closing Date, the Closing shall be adjourned for 30 business days for the purpose of obtaining such consent. If such consent is not given by such adjourned date, either Party may cancel this Contract by Notice, provided that the Corporation’s consent is not issued before such Notice of cancellation is given. If such consent is refused at any time, either Party may cancel this Contract by Notice. In the event of cancellation pursuant to this ¶ 6.3, the Escrowee shall refund the Contract Deposit to Purchaser.

6.4 If such consent is refused, or not given, due to Purchaser’s bad faith conduct, Purchaser shall be in default and ¶ 13.1 shall govern.

Provision 6.3 clearly states that “the Escrowee shall refund the Contract Deposit to Purchaser” in the event that “such consent (i.e. co-op board approval) is refused at any time.”

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Moreover, the standard Blumberg co-op contract specifies that the sale is subject to the “unconditional consent” of the Corporation. This means that a buyer has the right to cancel the contract and recoup the contract deposit if the co-op board’s approval comes with any conditions whatsoever.

Examples of board approval ‘conditions’ include the following:

The co-op requires the prospective purchaser to place funds in escrow with the co-op indefinitely or for a set period of time. For example, a co-op board may approve a purchaser conditional on the buyer placing two years of monthly maintenance payments in an escrow account for 24 months.
The co-op demands that the buyer obtain a guarantor who will personally guarantee payment of the monthly maintenance. The board requires the prospective guarantor to submit complete financial documentation (tax returns, bank statements, etc.) to the co-op board for review.
The co-op board mandates that the buyer reduce the size of the mortgage associated with the purchase, thereby requiring the buyer to make a higher down payment.

A buyer who does not agree to the approval condition(s) put forth by the co-op board may cancel the contract and recoup her or his contract deposit in full.

However, Provision 6.4 makes it clear that a board rejection due to a purchaser’s “bad faith conduct” will not result in the refund of the contract deposit. Instead, a purchaser who acted in bad faith and is consequently rejected by the co-op shall be considered as being in default of the contract and is therefore not entitled to a refund of the contract deposit.

Even though a seller is protected against intentional acts of bad faith by the purchaser, the reality is that it’s very hard to prove that an act of bad faith was the reason for the co-op board rejection.

This is because New York City co-ops rarely if ever state the reason for a co-op board rejection.

A buyer who is rejected by a NYC co-op board is customarily entitled to a full refund of the earnest money contract deposit.

In other words, the co-op board who rejects a prospective purchaser likely won’t send a letter to the seller’s real estate attorney explaining that the buyer was rejected because she/he used profanity during an interview or (more realistically) refused to answer certain questions.

Estimate your seller closing costs in New York City with Hauseit’s Interactive NYC Seller Closing Cost Calculator.

A seller who suspects bad faith on the part of the buyer may instruct her or his attorney to hold onto the deposit and claim damages. Most of the time, this does not result in full blown litigation but rather a settlement where the seller ends up keeping a small portion of the deposit.

If you are buying a co-op in NYC, be sure to confirm with your real estate attorney that whatever contract template being used contains standard provisions which protect your contract deposit in the event of a co-op board rejection or “conditional” board approval.

Estimate your buyer closing costs in NYC with Hauseit’s Interactive Buyer Closing Cost Calculator.

In conclusion, a buyer who acts in good faith as it relates to the co-op board application process but who is ultimately rejected by a NYC co-op board is customarily entitled to a full refund of the earnest money contract deposit.

Disclosure: Commissions are not set by law or any Realtor® association or MLS and are fully negotiable. No representation, guarantee or warranty of any kind is made regarding the completeness or accuracy of information provided. Square footage numbers are only estimates and should be independently verified. No legal, tax, financial or accounting advice provided.

A buyer who is rejected by a NYC co-op board is customarily entitled to a full refund of the earnest money contract deposit. The typical contract deposit in NYC is 10% of the purchase price, payable upon contract signing and held in escrow by the seller’s attorney until closing.

The only scenario under which a prospective purchaser is not entitled to a refund of the contract deposit after a board rejection is if the buyer acted in bad faith. Potential examples of bad faith include:

Buyer intentionally submits an application with errors or omissions

Buyer makes an untruthful statement in the application or supporting documentation

Buyer does not submit the application within the timeline stipulated by the contract

Buyer decides not to pay the fees associated with the board application

Buyer refuses to furnish additional documentation requested by the co-op

Buyer declines to attend the co-op board interview

Buyer intentionally fails an interview by misbehaving, lying or refusing to answer questions

The standard co-op contract used by most real estate attorneys in NYC contains an unconditional board approval contingency which protects a buyer’s contract deposit in the case of a board rejection or an approval subject to conditions.

This stock contract is published by Blumberg and developed by the Committee of Condominiums and Cooperatives of the Real Property Section of the New York Bar Association.

Here’s the language from Section 6. Required Approval and References:

6. Required Approval and References

6.1 This sale is subject to the unconditional consent of the Corporation.

6.2 Purchaser shall in good faith:

6.2.2 attend (and cause any Proposed Occupant to attend) one or more personal interviews, as requested by the Corporation; and

6.2.3 promptly submit to the Corporation such further references, data and documents reasonably requested by the Corporation.

6.4 If such consent is refused, or not given, due to Purchaser’s bad faith conduct, Purchaser shall be in default and ¶ 13.1 shall govern.

Provision 6.3 clearly states that “the Escrowee shall refund the Contract Deposit to Purchaser” in the event that “such consent (i.e. co-op board approval) is refused at any time.”

Moreover, the standard Blumberg co-op contract specifies that the sale is subject to the “unconditional consent” of the Corporation. This means that a buyer has the right to cancel the contract and recoup the contract deposit if the co-op board’s approval comes with any conditions whatsoever.

Examples of board approval ‘conditions’ include the following:

The co-op requires the prospective purchaser to place funds in escrow with the co-op indefinitely or for a set period of time. For example, a co-op board may approve a purchaser conditional on the buyer placing two years of monthly maintenance payments in an escrow account for 24 months.

The co-op demands that the buyer obtain a guarantor who will personally guarantee payment of the monthly maintenance. The board requires the prospective guarantor to submit complete financial documentation (tax returns, bank statements, etc.) to the co-op board for review.

The co-op board mandates that the buyer reduce the size of the mortgage associated with the purchase, thereby requiring the buyer to make a higher down payment.

A buyer who does not agree to the approval condition(s) put forth by the co-op board may cancel the contract and recoup her or his contract deposit in full.

Even though a seller is protected against intentional acts of bad faith by the purchaser, the reality is that it’s very hard to prove that an act of bad faith was the reason for the co-op board rejection.

This is because New York City co-ops rarely if ever state the reason for a co-op board rejection.

In other words, the co-op board who rejects a prospective purchaser likely won’t send a letter to the seller’s real estate attorney explaining that the buyer was rejected because she/he used profanity during an interview or (more realistically) refused to answer certain questions.

Estimate your seller closing costs in New York City with Hauseit’s Interactive NYC Seller Closing Cost Calculator.

A seller who suspects bad faith on the part of the buyer may instruct her or his attorney to hold onto the deposit and claim damages. Most of the time, this does not result in full blown litigation but rather a settlement where the seller ends up keeping a small portion of the deposit.

If you are buying a co-op in NYC, be sure to confirm with your real estate attorney that whatever contract template being used contains standard provisions which protect your contract deposit in the event of a co-op board rejection or “conditional” board approval.

Estimate your buyer closing costs in NYC with Hauseit’s Interactive Buyer Closing Cost Calculator.

In conclusion, a buyer who acts in good faith as it relates to the co-op board application process but who is ultimately rejected by a NYC co-op board is customarily entitled to a full refund of the earnest money contract deposit.

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