## Facts

- Buyers entered a contract to purchase real property from the seller and paid a $45,500 down payment.
- The contract made the buyers’ obligation to close contingent on issuance of a commitment from an institutional lender.
- The contract provided that if a commitment could not be obtained, the buyers were entitled to return of the down payment.
- The lender issued two commitments that were expressly conditioned on a satisfactory appraisal of the property.
- Before the appraisal condition could be satisfied, Hurricane Sandy damaged the property.
- A post-storm appraisal reflected insufficient value to support the proposed loan amount, and the lender denied the mortgage application.
- The buyers sued to recover the down payment and moved for summary judgment; the trial court denied the motion.

## Issues

1. Whether a lender’s appraisal-contingent commitments satisfied a contract clause requiring an institutional lender’s commitment, such that the buyers were not entitled to return of the down payment when the lender later denied the loan after a post-storm appraisal.
2. Whether the buyers were entitled to return of the down payment under N.Y. General Obligations Law § 5-1311(1)(a)(1) based on alleged destruction of all or a material part of the property without the buyers’ fault.

## Decision

- The Appellate Division, Second Department reversed the order denying summary judgment and granted the buyers’ motion, with costs.
- The court held the buyers were entitled to return of the down payment because they never received the firm, unconditional institutional lender commitment contemplated by the contract.
- In light of the contractual mortgage-contingency disposition, the court found it unnecessary to decide the statutory risk-of-loss theory.

## Legal Principles

- Where a real-estate contract conditions the buyer’s obligation on obtaining an institutional lender commitment and provides for return of the down payment if a commitment cannot be obtained, the buyer may recover the down payment when the condition precedent fails.
- A commitment that remains subject to material conditions (including a satisfactory appraisal) may be treated as non-firm for purposes of a mortgage-commitment contingency.
- Summary judgment is appropriate when the contract terms, the conditional nature of the commitments, and the lender’s denial (and its basis) are undisputed and establish failure of the contingency as a matter of law.

## Conclusion

Because the buyers’ lender commitments were conditioned on a satisfactory appraisal and the lender ultimately denied the loan after a post-storm appraisal, the contractual mortgage-commitment contingency was not satisfied; the buyers were therefore entitled to summary judgment returning their $45,500 down payment.


Walsh v. Catalano, 129 A.D.3d 1063, 12 N.Y.S.3d 226 (N.Y. App. Div. 2d Dep’t 2015)