Hello, we are first-time homebuyers at risk of losing our earnest money ($160k) through no fault of ours and would appreciate any opinions for recourse.

Apologies for the lack of brevity.

Offer:

My spouse and I made an offer for a condo back in March in a small 10-unit building which was accepted. Our credit scores (both ~800), and finances allowed us to lock in a decent rate of 3.5% with 20% down (in March 2022). This is NYC so the earnest money deposit is 10% which for us is 160,000, which we paid and entered the contract. Sellers wanted a late closing because of their personal situation and we were not in a hurry so we agreed to close in late July with a rate lock extension.

Lender commits and then backs out:

We got a commitment letter from the lender after a few weeks after *they claimed* that all the standard due diligence is done. Then we received an email a month after the commitment letter earlier this week saying that the lender is unable to lend because 6 out of the 10 units are sponsor-owned and rented out and the building had reported losses of ~$4000 per year for the last two years and because the building didn’t have reserve funds. The lender mentions that it is not denied because of any material change in our financial situation (because there is no material change). It almost feels like being set up and scammed. We are at risk of losing all of our house savings from the last few years. The lender is willing to give us a loan if we bump up our downpayment to 50% which we cannot do.

The biggest joke is that this lender is the same lender on the apartment. WAT!

Contract wording against us:

We have a “mortgage commitment contingency” in the contract. The exact wording in the contract states that we will not be entitled to our earnest money if the lender for any reason is unable to fund the loan after commitment.

Although the contract is technically against us, we didn’t operate in bad faith and are still trying to find another lender but previous rulings in NY and case law have sided generally with buyers in situations like this.

Talking with other lenders:

Then we started talking to other lenders to see if anyone can make this work -

• One more lender who had previously given us a pre-approval came back and said that they won’t be able to issue a loan on this property for the same reasons.
• Another lender said they may be able to qualify me for a sub-prime rate based on that information. The interest rates are already way higher than when we locked in 2 months ago so we’ll be seeing ~5.5-6%. But accepting subprime on our credit and finances sounds like a scam. Simple math suggests this apartment is going to be ridiculously more expensive for us this way.

Paths forward:

After a lot of calls with other lenders and my RE attorneys our options seem to be limited:

1. Accept a new loan from other lenders at a sub-prime rate and make this house a burden and become house poor (and reluctantly swallow this jawbreaker of a deal)
2. Full transparency and tell the sellers what is happening, maybe see if they can come down on the price a bit to soften the high rate a bit for us. They may be open to this because the market has slowed down considerably and they probably don’t want to find a new buyer as they need to sell this ASAP from what I understand.
3. Notify to back out and see what the sellers think. Q: Are there any other risks that I am not seeing here?
4. Worst case scenario: In case this goes into litigation, I was told there is a likelihood that our case will prevail because of precedent and similar rulings from the past (case law) as long as we can demonstrate that we did not act in bad faith, which we didn’t. This is obviously not ideal and we don’t want to pursue this without exhausting other options first.

Given the refusal from two lenders, and the situation with the building we also think this will be hard to sell it in the future for the same reasons if we end up buying it now. So there’s a part of us that just wants out, but we also don’t want to stick it to the sellers if we can afford the apartment at the reasonable terms we accepted terms.

A few people notes: I have a feeling the sellers are fair-minded people and just want to sell the apartment and move to their new place. (Although I have a feeling their listing agent is super hostile and sometimes doesn’t clearly relay our messages to the sellers). The lender seems like they might be willing to negotiate if we bump up our down payment or build a financial relationship outside of the mortgage with them (maybe the recent rate increase is why they are doing this in the first place? Feels shady but not impossible).

Outrage and despair

WHY didn't any of this come up before the assessment? It sure does feel like every party involved seems to be acting against us, even if they say they don't - my lender, the listing agent, my RE agent, the property management company, my RE lawyers, their RE lawyer etc.

This is a lot of money for us to lose. We are in our 30s and spent a lot of time planning and saving for this. We also feel like we bought at the peak of the market and are now being asked to shell out more money or risk losing all of our house savings. We love NYC but it can be the worst garbage fire sometimes. We are scared, anxious, and stressed and would appreciate kindness in any form at this time.