Mortgage Contingency Clause: A 2019 Case Buyers Should Know
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A mortgage contingency clause lets a buyer cancel a signed contract and recover their deposit if they can’t secure a mortgage commitment letter within a set window, typically 30 to 45 days in NYC. A 2019 New York case shows it isn’t automatic: buyers who mishandled their cancellation still lost their deposit.
We represent NYC buyers, and this is one of the most misunderstood protections in a contract. Having the clause and using it correctly are two different things.
The deposit doesn’t disappear just because the bank said no, but exactly how you exercise this clause matters more than most buyers realize.
What a mortgage contingency clause actually protects
A mortgage contingency is a condition in your signed purchase contract. Your obligation to buy is contingent on obtaining a mortgage commitment letter on the terms your contract specifies. If your lender formally denies you within the contingency period, this clause allows you to get your deposit back instead of losing it.
It’s a broader category than people assume. It can include a minimum loan amount, a maximum interest rate, and even an appraisal contingency as one of its components. Our pillar guide to negotiating in NYC covers how this fits among the other contingencies buyers negotiate.
Is a mortgage contingency necessary?
The question every seller and every buyer answers differently depends on who’s carrying the risk. Buyers want it because it’s their main protection if financing falls through after signing. Sellers often resist it, since a financed offer with this clause carries real risk of falling apart weeks into the process, costing them market time.
Whether you genuinely need it depends on your financial profile, the building’s own financial health, and current market conditions. A strong buyer applying to a well-regarded building carries less real risk than someone with a thinner file applying to a building with looser financials.
The mortgage contingency period in NYC
The clock that starts the day you’re in contract, not the day you applied, is the real timeline to track. This contingency only activates once the contract is signed and binding. It protects you from that point forward, typically for 30 to 45 days, until you secure your commitment letter.
Miss that window without an extension, and you can lose the very protection this clause exists to provide. Our commitment letter guide covers what has to happen before that deadline. Our pre-approval guide covers the earlier step that sets your file up to move fast.
What a 2019 NY case actually decided
Having the clause is not the same as using it correctly. In Federico v. Dolitsky, a 2019 case from New York’s Second Department, a bank denied the buyers’ loan during the contingency period. They tried to cancel and recover their deposit, but the court sided with the seller, finding the buyers had willfully defaulted.
The lesson isn’t that mortgage contingencies don’t work. It’s that the exact wording decides whether it protects you, and so does following its terms precisely when you invoke it, a point FH NY Law’s own write-up of this case and others like it makes in more legal detail than we will here. This is squarely a reason to have your attorney review the specific language before you sign, not after something goes wrong.
Waiving a mortgage contingency
A bet that your own file, not just the building, clears underwriting is what waiving this clause really is. NYC sellers often prefer offers without one, especially when competing against all-cash buyers who carry none of this risk.
If you waive it and your financing falls through, you generally forfeit your deposit with no contractual recourse. It’s worth doing only when you’re genuinely confident in your approval odds, ideally after being vetted by a lender for that specific building.
Mortgage contingency vs appraisal contingency
Two different ways a deal can fall through, each protected by a different clause, is the simplest way to keep these straight.
| Mortgage contingency | Appraisal contingency | |
|---|---|---|
| Protects against | Your loan being denied outright | The home appraising below your offer |
| Triggered by | Underwriting, credit, income | The appraiser’s valuation |
| Typical window | 30 to 45 days after contract | Set alongside the mortgage contingency |
| Can exist without the other | Yes | Yes |
Buyers frequently keep one and waive the other, depending on which risk feels larger for their specific deal.
What we tell clients before they waive one
The building’s own track record with lenders, not just your own file, is what we check before any client considers waiving this clause. A building with a history of loan denials or litigation makes waiving genuinely risky, regardless of how strong your own finances look.
As Georges puts it, “it’s all about the numbers and the execution,” and a mortgage contingency is where execution really gets tested if financing gets bumpy. On an average purchase, our commission rebate returns roughly $22,000 at closing, money several clients keep in reserve in case a deal needs extra flexibility. Run your full numbers on the closing cost calculators before deciding what to waive.
Common questions
What does a mortgage contingency clause do? It allows you to cancel your contract and recover your deposit if you can’t obtain a mortgage commitment letter within the contingency period. The terms your contract specifies are the ones that actually govern.
Is a mortgage contingency necessary in NYC? It depends on your financial profile, the building’s financial health, and market conditions. It’s your main protection if financing falls through after you’re in contract.
How long is the mortgage contingency period in NYC? Typically 30 to 45 days from when the contract becomes binding, though the exact window is negotiated in each contract.
Can I lose my deposit even with a mortgage contingency? Yes. In the 2019 New York case Federico v. Dolitsky, the court held that buyers who mishandled their attempt to cancel during the contingency period still forfeited their deposit.
Should I waive my mortgage contingency to compete with an all-cash offer? Only if you’re genuinely confident in your approval odds for that specific building. Waiving it means forfeiting your deposit if financing later falls through.
Nicole Fishman Benoliel co-founded NestApple in 2017. She's a lawyer admitted to the New York bar - her law degree is from La Escuela Libre de Derecho in Costa Rica, with further study at IE Business School in Madrid and an LLM from Fordham in New York. She does not act in a legal capacity at NestApple; every client is referred to an attorney who handles real estate deals full time.
