Can I Back Out After Signing? Will I Lose My 10% Deposit?

Downstate, buyers usually put down 10% of the price when they sign. On a $1 million home, that is $100,000. Many buyers don’t read the contract closely at signing, and only when they want out do they discover that getting the deposit back depends entirely on what the contract says.

New York Has No “Cooling-Off Period”

For resale homes, New York law does not give buyers a right to cancel for any reason within a few days of signing. Once the contract is signed and delivered, it binds both sides. Whether you can walk away lawfully depends on the contingencies in the contract or a legal ground for cancellation.

Common Ways a Buyer Can Lawfully Cancel

1. The mortgage contingency

The contract usually lets the buyer cancel and recover the deposit if a mortgage commitment is not obtained within a set period (commonly about 30 to 45 days). The details decide the outcome:

• The buyer must give written notice within the deadline and in the manner the contract requires;
• The buyer must apply for the loan in good faith and cannot sabotage the application;
• Whether the buyer is protected if the lender withdraws after issuing a commitment depends on the contract’s wording.

2. The co-op board approval contingency

If the board rejects the buyer, the co-op contract forms commonly used in New York cancel the deal and return the deposit.

3. Title problems

If the seller cannot deliver insurable, marketable title (for example, because of a lien that cannot be cleared or a dispute over ownership), the buyer can usually recover the deposit and the cost of the title search.

4. Damage to the home before closing

New York law provides that if a material part of the property is destroyed by fire or other casualty before title or possession passes, through no fault of the buyer, the buyer may cancel and recover the deposit (General Obligations Law §5-1311). Many contracts address this specifically.

5. Other agreed conditions

Upstate attorney-approval and inspection contingencies, or special conditions the parties negotiate, such as the sale of the buyer’s current home.

6. New developments (sponsor sales)

Buyers of new condos are governed by the offering plan. If the sponsor amends the plan in a way that is materially adverse to the buyer, the buyer may gain a limited window to rescind.

What Happens If You Walk Away Without a Legal Reason?

New York’s highest court confirmed in Maxton Builders v. Lo Galbo, 68 N.Y.2d 373 (1986) that when a buyer defaults without lawful excuse, the seller may keep a deposit of up to 10% of the price without proving actual damages. In some heavily negotiated high-end deals, courts have allowed sellers to keep even larger deposits (for example, Uzan v. 845 UN Ltd. Partnership, 10 A.D.3d 230 (1st Dep’t 2004), involving a 25% deposit).

What If the Seller Stalls?

The closing date in a contract is usually “on or about” a date, and a delay of a few days is typically not a default. If the seller keeps stalling, the buyer’s attorney can send a “time of the essence” notice giving a reasonable final deadline (Grace v. Nappa, 46 N.Y.2d 560 (1979)). A seller can do the same to a slow buyer. Once such a notice takes effect, failing to close by the deadline can be a default and cost the deposit.

What If the Seller Defaults?

The buyer usually can choose to:

• Recover the deposit and the cost of title charges;
• Or ask the court for specific performance, an order requiring the seller to sell as agreed. Because real estate is treated as unique, courts can order the transfer in these cases.

Attorney’s Insight

From an attorney’s perspective, the risk allocation is essentially fixed the moment the contract is signed. Some practical advice:

• Understand the mortgage timeline before you sign. The deadline, the notice requirements and whether extensions are allowed are the most frequent sources of disputes. Track your loan closely before the deadline and ask for an extension in writing if you need one;
• Never ignore a “time of the essence” notice. Once it takes effect, missing the deadline can be very costly. Call your attorney immediately;
• If you want out, negotiate before you walk. Even without a legal ground, negotiation through counsel can sometimes produce a partial refund or an extension. Simply failing to close is usually the worst option.

Attorney’s perspective

Whether you get your deposit back depends on the contract’s contingencies. We make sure the mortgage, inspection and other conditions are written clearly before you sign, and if problems arise, we pursue the return of your deposit under the contract.

For advice about your own situation, call +1 718-218-5805 or schedule a consultation. We meet clients in Flushing and Manhattan, in English or Chinese.

Series overview

This article is for general information only and is not legal advice. Reading it does not create an attorney-client relationship. For advice about your situation, please contact us.

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