Not A Loan
by Ron Davis
A mortgage broker has missed out on getting a sizable commission for arranging the financing of the sale of a Minnesota shopping center.
The shopping center is Brookdale Mall in suburban Minneapolis, and the center’s owner retained the mortgage broker after foreclosure of the property and takeover efforts by the lender.
The agreement between the broker and the center’s owner was a 90-day contract that gave the broker exclusive rights to find another lender. But prior to signing that agreement, the center’s owner had already received a loan commitment from a lender. Complicating matters, the mortgage broker later received a loan “letter of intent” from yet another lender. That deal never closed, however, and the 90-day agreement between the broker and center owner expired, as did the letter of intent with the second lender.
Nevertheless, the broker contended that the letter of intent constitutes a commitment. That would mean that the broker has a right to the agreed-on commission.
Not so, replied the center’s owner, explaining that the letter of intent was not a commitment. The center’s owner also pointed out that the 90-day contract between the center’s owner and the broker expired before any closing occurred. So, added the center’s owner, because the broker no longer had an exclusive right to arrange financing—and was not involved in any financing arrangements—the broker has no right to a commission.
The broker responded that an extension provision of the letter agreement automatically continues the contract “for a period sufficient to close the loan or equity joint venture investment if you [the center’s owner] have delivered to us an acceptable formal application or commitment from a lender or equity investor….”
The broker therefore sued the center’s owner.
An appellate court in New York State, where the lawsuit was tried, ruled in favor of the center’s owner, explaining, “The broker cannot collect a commission because the letter agreement provides that no commission would be earned until the loan closed, and the loan did not close until after the letter agreement expired.”
As for the extension provision, the judge noted, “Once it was clear that the parties would not reach an agreement, the extension no longer continued, because its purpose, to allow for the loan to close, no longer existed.” (Ackman-Ziff Real Estate Group v. Talisman Brookdale (Slip Copy, 2008 WL 2206655 [N.Y. Sup.], 2008 N.Y. Slip Op. 51059[U])
Decision: May 2008
Published: June 2008