When an open building violation or permit surfaces days before closing, the deal usually goes one of four ways: close with money held in escrow, close with a price credit, move the closing date, or cancel. Which is available depends on the contract of sale and the buyer’s lender. Open permits and most building violations are not liens, so the title company reports them and closes over them; it does not decide whether the buyer must accept them.
This guide covers New York City (the five boroughs, where the Department of Buildings and HPD issue the records) and Westchester County (where each city, town and village runs its own building department). For what the records mean, see NYC property violations at closing, open permits on a NYC sale and open permits and COs at a Westchester closing.
First, sort the item
Liens and money judgments are title matters. In NYC that includes unpaid HPD emergency repair charges, DOB-issued ECB judgments converted to tax liens, and ECB judgments against the seller. The title company requires these paid or disposed of at closing, usually from the seller’s proceeds.
Information items are everything else: open DOB or HPD violations, open or expired permits, a missing certificate of occupancy (CO), or a CO that does not match the use. These are contract and lender questions, and the four options below apply to them.
A few Westchester municipalities (Peekskill, Tarrytown, Sleepy Hollow for some property types, and Dobbs Ferry) require an updated CO or inspection on sale by code. There, a holdback or credit does not satisfy the code requirement.
What the standard contract says
Many New York residential deals use the Residential Contract of Sale (2000) prepared by the New York State Bar Association and the New York City Bar (form copy), heavily modified by riders. The signed contract controls. The base form provides:
- ¶10(a): the seller must comply with violations “noted or issued as of the date hereof” and convey free of them. Violations issued after the contract date are not covered by this wording.
- ¶16(b): the buyer’s obligation is conditioned on the seller delivering a valid CO, or evidence none was required.
- ¶21(b): if the seller cannot convey as the contract requires and the buyer will not close without an abatement, the seller chooses whether to cure or cancel. A seller who chooses to cure may adjourn closing for up to 60 days in total, but not past the buyer’s mortgage commitment expiration. If the problem is still unresolved, either party may cancel by notice within 10 days after the adjourned date.
- ¶8(a): once the buyer has a mortgage commitment, the buyer is bound “even if the lender fails or refuses to fund the loan for any reason.”
So under the base form, a lender refusing to fund over an open item does not by itself give the buyer a right to cancel.
The four options at a glance
| Option | Must agree | Key document | Main risk |
|---|---|---|---|
| Escrow holdback | Buyer, seller, escrow agent, lender | Written escrow agreement | Work stalls; funds sit |
| Price credit | Buyer, seller, lender | Contract amendment; Closing Disclosure | Buyer owns the cure |
| Adjourn closing | Per contract; usually both | Adjournment notice or letter | Rate lock or commitment expires |
| Cancel | Depends on contract rights | Written notice | Dispute over the deposit |
Escrow holdback
The parties close on schedule, and part of the seller’s proceeds is held until the item is resolved: the DOB job is signed off, a Letter of Completion or CO issues, HPD shows the violation certified, or a Westchester building department closes the permit.
Who must agree. Buyer and seller, in writing; the base form has no general holdback clause (its ¶20 deposit with the title company covers only liens the title company will insure clear of). An escrow agent must accept the role, and any lender must accept closing with the item open.
Who holds the money. Usually one of the attorneys, as a fiduciary in a special account separate from the lawyer’s own funds (22 NYCRR 1200.0, Rule 1.15). Title companies do hold escrows, but in practice mainly for title items such as taxes, water charges or judgments, under underwriter rules. A title company may decline a holdback for an open permit, which it does not insure.
The agreement. Amount, holder, who does and pays for the work, the release document, a deadline, and what happens at the deadline (for example, release to the buyer to finish the work). Amounts are negotiated, often from an expediter’s or architect’s estimate plus a margin.
Lender view. Fannie Mae’s completion-escrow rules (B4-1.2-05) cover postponed improvements on new construction and HomeStyle Refresh loans, and let a lender escrow at its discretion for minor conditions on existing homes that do not affect safety, soundness or structural integrity. They do not address a seller’s open permits or violations. A party-to-party holdback sits outside the loan; the lender still decides whether to close over the item.
Price credit
The seller reduces the price or gives a credit, and the buyer takes the property with the item open and fixes it after closing.
Who must agree. Buyer and seller, through a contract amendment. The lender must see and accept it, because it changes the sale price or the closing figures.
Lender limits. A credit changes the Closing Disclosure, and a corrected one must reach the buyer at or before closing. A credit change alone does not restart the three-business-day wait; that is triggered only by an inaccurate APR, a changed loan product or an added prepayment penalty (12 CFR 1026.19(f)(2)). Lenders also cap seller contributions. For Fannie Mae conventional loans on a primary residence, the cap is 3%, 6% or 9% depending on loan-to-value; any excess, or any amount above actual closing costs, is deducted from the sales price (B3-4.1-02). A straight price reduction avoids the cap but the lender re-runs the loan.
Risk. The buyer owns the cure at its real cost, and the item stays of record. In NYC, see charges that follow the property.
Adjourn the closing
The closing moves to a later date so the item can be cured first.
Who decides. Under the base form, a seller who elects to cure has a unilateral right to adjourn up to 60 days in total (¶21(b)). Otherwise, an adjournment is by agreement. Where the contract does not make time of the essence, New York courts allow a reasonable adjournment of the closing date, and a party can make time of the essence only by clear, unequivocal notice that gives a reasonable time to perform (Revital Realty Group, LLC v Ulano Corp., 112 AD3d 902 (2d Dept 2013); Weintraub v Stankovic, 43 AD3d 543 (3d Dept 2007)).
Documents. A written adjournment notice or letter agreement between attorneys, and, where the buyer has a loan, an extension of the commitment and rate lock.
Risk. Cures often outlast a short adjournment. An old NYC job may need reinstatement in DOB NOW and new sign-offs; a CO change can take months (no CO in NYC). Rate lock extension fees and commitment expiration land on the buyer unless the parties agree otherwise.
Cancel the contract
Cancellation is available only when the contract gives a right to it. Under the base form and common riders, that means: the seller cannot deliver the ¶16(b) CO or clear ¶10(a) violations; the seller elects to cancel under ¶21(b) or the 60-day cure period runs out; a rider cost cap is exceeded; or the buyer has a specific permit or violation contingency.
Deposit. Under the base form, the seller’s attorney holds the downpayment in escrow (¶6). If one party demands it and the other does not object within 10 business days, the escrowee may release it; otherwise it stays in escrow until the parties agree or a court orders release. A buyer who refuses to close without a contract right risks the deposit as liquidated damages (¶23(a)).
Risk. A cancellation notice that does not track the exact contract language invites a deposit dispute.
Sequence when an item turns up
- Identify it: agency, record number, issue date, lien or not (BIS, DOB NOW, HPDONLINE, or the Westchester municipal file).
- Read the contract and rider: violation, CO and permit clauses, cost cap, cancellation rights.
- Ask the lender whether it will fund with the item open, a holdback or a credit, in writing.
- Price the cure with an expediter, architect or contractor estimate.
- Paper the result before closing day: escrow agreement, amendment, adjournment letter or cancellation notice.
Sellers can avoid most of this by searching before listing; see the pre-listing checklist and checking NYC violations and permits before contract.
Official sources
- NYSBA / NYC Bar, Residential Contract of Sale (2000), form copy: https://forms.justia.com/new-york/statewide/real-estate/title/residential-contract-of-sale-2000-long-form-42326.html
- 22 NYCRR 1200.0, Rule 1.15 (Rules of Professional Conduct): https://www.law.cornell.edu/regulations/new-york/22-NYCRR-1200.1.15
- 12 CFR 1026.19(f) (TILA-RESPA closing disclosures): https://www.law.cornell.edu/cfr/text/12/1026.19
- Fannie Mae Selling Guide B4-1.2-05, Requirements for Verifying Completion and Postponed Improvements: https://selling-guide.fanniemae.com/sel/b4-1.2-05/requirements-verifying-completion-and-postponed-improvements
- Fannie Mae Selling Guide B3-4.1-02, Interested Party Contributions: https://selling-guide.fanniemae.com/sel/b3-4.1-02/interested-party-contributions-ipcs
- Revital Realty Group, LLC v Ulano Corp., 112 AD3d 902 (2d Dept 2013): https://www.nycourts.gov/reporter/3dseries/2013/2013_08607.htm
- Weintraub v Stankovic, 43 AD3d 543 (3d Dept 2007): https://www.nycourts.gov/reporter/3dseries/2007/2007_06323.htm