Q: “I am ready to buy property again. I have cash and an interested lender. How do I protect myself if my lender walks at the last minute?”

Answered by Michael J. Tuchman

The question prompts one to think of financing contingencies, which have been largely absent from the commercial real estate market for many years. In the COVID world, we have seen sellers accept financing contingencies, in some cases, right through the date of closing. Many of our selling clients recognize that there are not that many buyers in the market right now, and if a buyer and lender are credible and the desired level of financing is modest, this may be a risk worth taking. From the buyer’s perspective, a financing contingency that expires before the closing date does not mitigate the risk that a lender will walk at the last minute. To mitigate this risk for buyers, we have been using a lender “failure to fund” provision as part of a broader COVID contingency that also includes other impediments to closing, such as an inability of the title company to perform or a major tenant failing to pay rent before closing. Jeff Hoffenberg chair of LP’s Real Estate Group  shared “a lender failure to fund contingency should be more palatable to a seller than a general financing contingency that runs through the date of closing. For buyers with both capital and appetite, there are creative ways to mitigate COVID-related risks to get deals done.”