Open Violations or Permits Found Days Before Closing: Holdback, Credit, Delay or Walk Away

There are usually four ways out: close with money held back in escrow, close with a price credit, move the closing date, or cancel. Which ones you have depends on the contract and the buyer’s lender. Open permits and most building violations are not liens, so the title company reports them and closes anyway. It does not decide whether the buyer has to accept them.

This guide covers New York City, where the Department of Buildings (DOB) and the Department of Housing Preservation and Development (HPD) keep 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, figure out what kind of item it is

Liens and money judgments are title problems. A lien is a money claim against the property. In NYC, these include unpaid charges for emergency repairs HPD made, DOB violation judgments that were converted into tax liens, and violation (ECB) judgments against the seller. The title company requires these paid or cleared 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 doesn’t match the use. These are questions for the contract and the lender, and the four options below apply to them.

A few Westchester places require an updated CO or an inspection when a property is sold: Peekskill, Tarrytown, Sleepy Hollow (for some property types) and Dobbs Ferry. There, a holdback or credit does not meet the local requirement.

What the standard contract says

Many New York home sales use the 2000 Residential Contract of Sale, a form from the New York State Bar Association and the New York City Bar (form copy). Riders, extra pages added to it, often change it. Your signed contract controls. The base form says:

Violations. The seller must fix violations “noted or issued as of the date hereof,” meaning as of the contract date, and hand over the property free of them. Violations issued after the contract date are not covered by this wording.
CO. The buyer doesn’t have to close unless the seller delivers a valid CO, or proof none was required.
Seller can’t deliver. If the seller can’t deliver what the contract requires, and the buyer won’t close without a price cut, the seller chooses whether to fix the problem or cancel. A seller who chooses to fix it may push back the closing for up to 60 days in total, but not past the date the buyer’s mortgage commitment expires. If it’s still unfixed, either side may cancel by notice within 10 days after the new closing date.
Financing. Once the buyer has a mortgage commitment, the buyer must close “even if the lender fails or refuses to fund the loan for any reason.”

So under the base form, a lender refusing to fund because of an open item does not, by itself, let the buyer cancel.

The four options at a glance

Option	Who must agree	Key paperwork and main risk
Escrow holdback	Buyer, seller, escrow agent, lender	Written escrow agreement. Risk: work stalls and the money sits.
Price credit	Buyer, seller, lender	Contract amendment and updated Closing Disclosure. Risk: the buyer owns the fix.
Delay the closing	Per contract; usually both	Delay notice or letter. Risk: rate lock or loan commitment expires.
Cancel	Depends on contract rights	Written notice. Risk: a fight over the deposit.

Escrow holdback

You close on schedule, and part of the seller’s proceeds is held back until the item is resolved. That can mean the DOB job is signed off, a Letter of Completion (DOB’s sign-off letter for smaller renovations) or CO issues, HPD shows the violation fixed, or a Westchester building department closes the permit.

Who must agree. Buyer and seller, in writing; the standard form has no general holdback clause. An escrow agent must agree to hold the money, and any lender must agree to close with the item open.

Who holds the money. Usually one of the attorneys, as a fiduciary (someone legally bound to safeguard the money for others), in a separate account apart from the lawyer’s own funds (attorney conduct rules). Title companies do hold escrows, but in practice mostly for title items such as taxes, water charges or judgments, under their insurers’ rules. A title company may refuse to hold money for an open permit, which it doesn’t insure.

What the agreement covers. The amount, who holds it, and who does and pays for the work. Also the document that releases the money, a deadline, and what happens at the deadline (for example, the money goes to the buyer to finish the work). Amounts are negotiated, often from an expediter’s or architect’s estimate plus extra for surprises.

What the lender thinks. Fannie Mae’s rules on holding money for unfinished work don’t address a seller’s open permits or violations (Fannie Mae completion rules). A holdback between buyer and seller sits outside the loan. The lender still decides whether to close over the item.

Price credit

The seller lowers the price or gives a credit. 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 price or the closing numbers.

Lender limits. A credit changes the Closing Disclosure, the federal form showing your final loan and closing costs. A corrected one must reach the buyer at or before closing. A credit alone does not restart the three-business-day waiting period before closing (federal rule).

Lenders also cap how much the seller can contribute. For Fannie Mae loans on a home you will live in, the cap is 3%, 6% or 9%, depending on how much you are borrowing compared with the home’s value. Anything over the cap, or over the actual closing costs, is subtracted from the sale price (Fannie Mae seller contribution rules). A straight price cut avoids the cap, but the lender redoes the loan numbers.

Risk. The buyer pays the real cost of the fix, and the item stays on record. In NYC, see charges that follow the property.

Delay the closing

The closing moves to a later date (an adjournment) so the item can be fixed first.

Who decides. Under the standard form, a seller fixing the problem can delay on its own, up to 60 days in total. Otherwise, both sides must agree. If the contract doesn’t make the closing date firm (“time of the essence”), New York courts allow a reasonable delay. A party can make the date firm only with a clear, unmistakable notice that gives the other side a reasonable time to close (2013 decision; 2007 decision).

Documents. A written notice or letter between the attorneys, plus, for a buyer with a loan, an extended commitment and rate lock.

Risk. Fixes often take longer than a short delay. An old NYC job may need to be reinstated in DOB NOW and signed off again. A CO change can take months (no CO in NYC). Rate lock extension fees and an expiring commitment fall on the buyer unless the parties agree otherwise.

Cancel the contract

You can cancel only if the contract gives you that right. Under the standard form and common riders, that means one of these:

The seller can’t deliver the required CO or clear covered violations.
The seller chooses to cancel instead of fixing, or the 60-day fix period runs out.
A cost cap in a rider is exceeded.
The buyer has a specific permit or violation contingency.

The deposit. Under the standard form, the seller’s attorney holds the buyer’s down payment in escrow. If one side demands it and the other doesn’t object within 10 business days, the attorney may release it. Otherwise it stays in escrow until both sides agree or a court orders its release. A buyer who refuses to close without a contract right to cancel risks losing the deposit to the seller as damages.

Risk. A notice that doesn’t follow the exact contract wording invites a deposit fight.

What to do when an item turns up

Identify it: which agency, record number, issue date, and whether it’s a lien. Check BIS, DOB NOW, HPD Online, or the Westchester municipal file.
Read the contract and rider: violation, CO and permit clauses, any cost cap, and cancellation rights.
Ask the lender, in writing, whether it will fund with the item open, a holdback or a credit.
Price the fix with an expediter, architect or contractor estimate.
Put the result in writing before closing day: escrow agreement, amendment, delay 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.

Details for attorneys and title professionals

Where the contract rules sit. In the 2000 standard contract:
- Paragraph 6 covers the seller’s attorney holding the down payment in escrow.
- Paragraph 8(a) covers the buyer staying bound once a mortgage commitment is issued.
- Paragraph 10(a) covers the seller’s duty to clear violations noted or issued as of the contract date.
- Paragraph 16(b) covers the condition that the seller deliver a valid CO, or proof none was required.
- Paragraph 21(b) covers the seller’s choice to fix or cancel, and the 60-day delay.
- Paragraph 23(a) covers the down payment as the seller’s only damages if the buyer defaults.
Fannie Mae completion escrows. These cover new construction and Fannie Mae’s HomeStyle Refresh renovation loans. A lender may also, at its choice, escrow for minor conditions on existing homes that don’t affect safety, soundness or structure.
The three-day wait. A corrected Closing Disclosure restarts the three-business-day wait only if the APR becomes inaccurate, the loan product changes, or a prepayment penalty is added.
Title company deposits. The form’s paragraph 20 lets the seller deposit money with the title company only for liens the title company will then insure clear of. It is not a general holdback clause.

Official sources

Korvane Title is preparing to launch in New York. It is not licensed as a title insurance agent and does not accept title orders. Content on this site is general information, not legal advice.