by: Patrick A. Randolph, Jr.
Professor of Law
UMKC School of Law
randolphp@umkc.edu

VENDOR/PURCHASER; CONDITIONS; FINANCING CONDITIONS: Where contract requires purchaser to apply for a mortgage loan from an institutional lender within ten days of the contract, purchaser does not satisfy condition when purchaser applies instead to a mortgage broker, if the broker does not transfer the application to an intstitutional lender within ten days. Vafa v. Cramer, 622 N.Y.S.2d 567 (App. Div. 1995).

This one page case, typical of New York appeals court law, fails to give us a lot of information about the court's reasoning. It purports to read the parties' intent as clear and unambiguous. Application was not made to "an institutional lender," ergo, the buyer did not comply with the terms of the condition and was not excused when the lender ultimately declined the loan.

Comment: Although, of course, special information about the precise dealings of the parties is appropriate, this does seem to be extreme reading of a consumer form instrument. Why isn't a mortgage broker an "institution" in the eyes of the typical home purchaser? Does the consumer really know the difference. Did either buyer or seller really understand the nuances of the application requirement. In particular, could the seller explain why it required an institutional lender at the time (before being coached by seller's counsel)? There may good financial reasons to require the buyer to apply directly to an institutional lender, but those reasons are hardly appreciated either by buyers or sellers.

It would seem better, at least, for the court to inquire whether the parties, at the time of the contract, knew and appreciated the distinction between a mortgage broker and an institutional lender and bargained with only one type of loan application in mind.

Comment 2: Even assuming that the contract is deemed to be clear, is there really a significant difference in the modern marketplace between a mortgage broker and an institutional lender. Don't many "institutional lenders" trade their mortgage paper on the marketplace in exactly the same way that mortgage brokers do? In fact, would most institutional lenders actually be able to keep all the loans they underwrite, or are they (or at least the successful ones) constantly skirting lending authority limitations - selling off their portfolios soon after they develop them? In such a climate, is there really a meaningful distinction as to the type of lender? Should we read the requirement for application to an institutional lender to be a requirement for a formal loan application filed with a party who will seek to fund the loan from standard institutional sources?

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