What Happens to Your Condo Deposit if the Developer Goes Bankrupt?

Updated Oct 27, 2026 · 12 min read

Short answer: Your deposit is not the developer's money. On a new NYC condo it goes into an escrow account, and New York law says it stays yours, held in trust, until it is used to close your purchase. If the developer (the sponsor) abandons the offering plan, the plan says you get the deposit back. If the sponsor goes bankrupt, plans state the escrowed money isn't part of the sponsor's estate. The bigger risks in a bankruptcy are delay and losing the apartment itself.

We checked this against the plans. Of the 1,745 NYC new-construction condo plans accepted for filing that we have in full text, 45% use the same standard bankruptcy wording, and 69% say the escrow account is federally insured. Plans fail more rarely than you might fear: of the 9,490 NYC condo plans the Attorney General accepted for filing, 197 (2.1%) are now marked abandoned. This is a plain-English guide, not legal advice. Your own attorney should read the plan and the purchase agreement before you sign.

Where Your Deposit Sits

Offering plans fall under the Martin Act, New York's securities law, and General Business Law § 352-h covers the money buyers pay. It says deposits "shall continue to be the money of the person making such purchase, deposit or advance," held in trust and not mixed with the sponsor's own funds. The Attorney General's rules for new-construction condos make an escrow agreement mandatory for all deposits paid before closing (13 NYCRR 20.3(o)(3)). Plans repeat the rule in their own words:

“All Deposits, except for advances made for upgrades, extras, or custom work received in connection with the Purchase Agreement, are and shall continue to be the Purchaser’s money, and may not be comingled with any other money or pledged or hypothecated by Sponsor, as per GBL § 352-h.”
517 W. 29th Street Condominium, 517 - 523 West 29th Street, Manhattan · plan CD240168, p. 62

Many add a line on bankruptcy:

“Such funds shall not be a part of the estate of the Sponsor or the escrow agent upon any bankruptcy, incapacity or death.”
134 Penn Street Condominium, 134 Penn Street, Brooklyn · plan CD200175, p. 58

That sentence, word for word, is in 781 of the 1,745 plans (45%). Other plans make the same point in different words, so the real share is higher.

Who holds it. The escrow agent is often a law firm. In the plan quoted next, it's the same firm that filed the plan for the sponsor. That can feel odd, but plans state that the escrow agent owes you a fiduciary duty for the money, and § 352-h makes any clause waiving its protections void. The account itself sits at a bank, and the plan names it:

“in a segregated special escrow account (the “Escrow Account”) of Kramer Levin Naftalis & Frankel LLP, having an office at 1177 Avenue of the Americas, New York, New York 10036. The Escrow Account, established at Citibank, N.A., 153 East 53rd Street, 23rd Floor, New York, New York 10022 (the “Bank”), is federally insured by the FDIC at the maximum amount of $250,000 per deposit (the FDIC limit in effect as of the filing date hereof). Any deposit in excess of $250,000 (or the FDIC limit in effect from time to time) will not be insured.”
517 W. 29th Street Condominium, 517 - 523 West 29th Street, Manhattan · plan CD240168, p. 13

Note the limit. FDIC insurance protects you if the bank fails, not the sponsor, and only up to the insured amount. A 10% deposit on a $3 million apartment is more than that. The plan tells you which bank holds the account, so you can check whether you have other money there too.

When it can be released. The escrow agent can't hand your deposit to the sponsor because the sponsor asks. Plans list three ways out of escrow:

“The Escrow Agent shall release the Deposit if so directed: (a) pursuant to terms and conditions set forth in the Purchase Agreement upon closing of title to the Unit; or (b) in a subsequent writing signed by both Sponsor and Purchaser; or (c) by a final, non-appealable order or judgment of a court.”
517 W. 29th Street Condominium, 517 - 523 West 29th Street, Manhattan · plan CD240168, p. 62

So if a deal goes bad and you and the sponsor disagree, the money stays put until you both sign, or a court decides. That protects the deposit, but it can take a long time.

One carve-out: the trust language covers deposits, "except for advances made for upgrades, extras, or custom work." Some plans let the sponsor spend upgrade money before closing. Money you pay for a custom kitchen may not come back in full.

How Big Is the Deposit?

The plan sets it, and the amount varies. Here are four real examples from NYC plans:

““Initial Deposit” shall mean a deposit in an amount equal to 10% of the Purchase Price required to be delivered by Purchaser at the time Purchaser signs and delivers the Purchase Agreement.”
Surrey Condominium, 20 East 76th Street, Manhattan · plan CD240002, p. 51

“At the time a Purchase Agreement is executed, a Purchaser is required to make a down payment in an amount equal to fifteen (15%) percent of the Purchase Price (the “Down Payment”). In the event the Purchaser defaults, the Sponsor shall have the right to retain the entire Down Payment.”
Two Fifty West 81 St, 250 West 81st Street, Manhattan · plan CD170047, p. 80

“A Purchaser is required to make a Deposit in an amount equal to twenty percent (20%) of the Purchase Price of such Unit (the “Deposit”) at the time a Purchase Agreement is executed.”
100 Franklin Street Condominium, 100 Franklin St & 3 Avenue Of The Americas, Manhattan · plan CD180350, p. 102

“Foreign governments and persons with diplomatic immunity will be obligated to make an Initial Deposit in an amount equal to at least fifty percent (50%) of the Purchase Price on the execution of an Agreement.”
118 West 13th Street Condominium, 118 West 13th Street, Manhattan · plan CD240218, p. 8

Some plans add a second deposit later, or ask for more if you want to push back your closing. Read the "Procedure to Purchase" section and the purchase agreement for the full schedule. Notice the second half of the 15% example, too. If you default, the sponsor can usually keep the deposit. The escrow protects you from the sponsor, not from your own contract.

If the Plan Is Abandoned or Never Declared Effective

A plan is declared effective when enough buyers sign, which lets sales close. Under the AG's rules it can't be declared effective until purchase agreements cover at least 15% of the units, and it must be once 80% are signed (13 NYCRR 20.3(q)(3) and (q)(5)). Until then, your contract depends on it. If the sponsor abandons the plan first, the rules require a full refund of all money paid, with any interest, within a set number of days (13 NYCRR 20.3(q)(6)). Plans set the deadline:

“If the Offering Plan is abandoned, Purchase Agreements will be terminated, and all monies held by Sponsor, including advances made for upgrades, extras, or custom work, shall be returned to Purchasers within five (5) business days after the amendment abandoning the Offering Plan has been accepted for filing”
346 Avenue U Condominium, 346 Avenue U, Brooklyn · plan CD230090, p. 70

Some plans also set a time limit for becoming effective. One reads:

“If the Plan is abandoned or does not become effective within twelve (12) months from the date of presentation and is not extended, this Agreement shall be deemed canceled and the Plan terminated and I am to receive back, not later than ten (10) days thereafter, in full, all monies paid by me hereunder.”
1755 Benson Avenue Condominium, 1755 Benson Avenue, Brooklyn · plan CD230024, p. 131

After the plan is effective, the sponsor can't simply walk away. The rules allow abandonment then only for a title defect, damage to the building by fire or other casualty, or the taking of a large part of the property by condemnation, each above a set cost (13 NYCRR 20.3(q)(7)).

How often it happens. Of the 9,490 NYC condo plans in the AG's records that were accepted for filing, 197 are now marked abandoned (2.1%). 55 of those had been declared effective before they were abandoned; the other 142 have no effective date on record. Another 295 plans were withdrawn, but only 6 of them after acceptance. Most withdrawn plans never reached the stage where units could be sold. The AG record doesn't say why a plan was abandoned. Money trouble is one reason, but not the only one. Some plans, for example, require the sponsor to abandon the plan if it starts renting units out.

If the Building Isn't Finished on Time

New buildings run late. The AG's rules make every plan state when the sponsor expects the first closing, and say that if that date slips by 12 months or more, buyers will be offered rescission: the right to cancel and get the deposit back (13 NYCRR 20.3(o)(12)). In the plan it looks like this:

“Purchasers will be offered a right of rescission if: (i) the actual date of closing of title to the first Unit; or (ii) the projected date of closing of title to the first Unit occurs later than June 30, 2022, twelve months after the projected date for the first closing.”
134 Penn Street Condominium, 134 Penn Street, Brooklyn · plan CD200175, p. 44

65% of the 1,745 plans use the phrase "projected date for the first closing." Two catches. The clock runs on the first closing in the building, not yours. And the sponsor can move the projected date by amendment, which changes the clock, so read every amendment you're served. Here's how to find them.

Bad news in an amendment. If an amendment discloses a material change that hurts buyers, the sponsor must offer existing buyers rescission, with at least 15 days to decide, and return their deposits (13 NYCRR 20.5(a)(5)). Plans spell it out:

“Purchasers have a right to rescind purchase agreements following material adverse amendments. Affected Purchasers will be given, for not less than fifteen (15) days after the presentation of the amendment, the right to rescind by sending written notice to the Sponsor. Sponsor will return any deposit or down payment to purchasers who rescind within fifteen (15) days of the receipt of written notice of rescission.”
499 Van Buren Street Condominium, 499 Van Buren Street, Brooklyn · plan CD220213, p. 131

Whether a change is "material and adverse" can be argued. Some plans define what counts, so read that section with your attorney.

If the Construction Lender Takes the Building

Most new condos are built with borrowed money. 71% of the 1,745 plans name a construction lender, either in the plan or in mortgages recorded on the lot in ACRIS. See who lends on which buildings on our construction lenders page. The AG's rules make the plan disclose the loan terms that affect sales, such as the minimum price at which the lender will release each unit from its mortgage (13 NYCRR 20.3(t)(9)).

If the sponsor defaults, the lender may foreclose or take a deed instead. Your deposit stays in escrow either way. The open question is your contract. Plans often name a successor sponsor, a new owner who steps into the sponsor's role; 72% of the 1,745 plans use that term. And some plans say up front that a hand-over to the lender doesn't by itself give you the right to cancel:

“In the event that Sponsor transfers ownership of the Property to any Sponsor Lender or any affiliate thereof (by deed in lieu, conveyance, foreclosure, or otherwise) in accordance with the terms of such loan documents, such transfer shall not by itself constitute a material or adverse change affording Purchasers any rights to rescind their Option Agreements.”
80 Clarkson, 80 Clarkson Street, Manhattan · plan CD240208, p. 58

In a foreclosure or bankruptcy, the deposit is the part most likely to be safe. Whether you still get your apartment, at your price and on your timeline, depends on the new owner, the plan and the court.

What 1,745 NYC new-construction condo plans say about deposits and the sponsor's lender

Names a construction lender (plan or ACRIS)	71%
Uses the term "successor sponsor"	72%
Says the escrow account is federally insured by the FDIC	69%
Gives a projected date for the first closing (12-month rescission)	65%
Says escrowed funds are outside the sponsor's estate in a bankruptcy	45%

Share of NYC new-construction condo offering plans accepted for filing whose pages are in full text. A plan can use other wording for the same protection, so these are floors, not the share of plans that offer it.

Tips for Buyers

Read the escrow section first. It names the escrow agent, the bank and the account. Make your check or wire out to that account, never to the sponsor or a broker.
Mind the FDIC limit. If your deposit is above the insured amount, ask the escrow agent how much of it is insured, and don't keep other money at the same bank.
Find the dates. Note the projected first closing date and any outside date in your purchase agreement. Diary the date 12 months after.
Pay for upgrades last. Upgrade advances aren't covered the same way as the deposit. Ask when that money can be spent.
Check the lender. The plan's financing section names the construction lender and its release prices. If the plan says financing isn't committed yet, ask your attorney what that means for you.
Watch your mail. Rescission offers come in amendments with a short window, at least 15 days. Send anything you're served to your attorney the same week.
Know the closing costs. The deposit is only part of what you'll pay. See closing costs on a new NYC condo, and how a sponsor's preferred lender can tie into your mortgage contingency.

FAQ

Can the developer use my deposit to finish the building?

No. Under General Business Law § 352-h the deposit stays your money, held in trust, until it is used to close your purchase. The escrow agent releases it at your closing, on a writing signed by you and the sponsor, or on a final court order.

What happens to my deposit if the developer goes bankrupt?

Plans state that escrowed deposits are not part of the sponsor's estate in a bankruptcy. The money should stay in escrow. Getting it out, or getting your apartment, may take time and depend on the court, so talk to your attorney early.

Do I get my deposit back if the offering plan is abandoned?

Yes, if the plan is abandoned before it is declared effective, the AG's rules require a full refund, with any interest, within a set number of days. After it is effective, the sponsor can abandon only for a few reasons, such as a title defect or major damage to the building.

What if the building is more than a year late?

Every new-construction plan states a projected first closing date. If the first closing slips 12 months or more past it, buyers must be offered the right to rescind and get their deposits back.

Is my deposit insured?

Plans usually name an FDIC-insured bank account, but FDIC insurance covers the bank failing, not the sponsor, and only up to the insured amount. Larger deposits are partly uninsured.

Where do I find this in the offering plan?

Look for the escrow and trust fund section (often under "Procedure to Purchase"), the special risks up front, the sponsor's obligations and the financing section. What an offering plan contains explains the layout. If a plan is new to the market, here's how long AG review takes.

How we counted: plan outcomes are from the Attorney General's status on each NYC condominium plan record (plan IDs starting CD); "accepted" means the record has an accepted date, and "abandoned" or "withdrawn" is the current status. Plan wording covers NYC new-construction condo plans accepted for filing whose pages are in our full-text index, searched for the exact phrases shown; a plan that says the same thing in other words isn't counted. A construction lender counts when the plan names one or ACRIS shows a construction mortgage on the lot before the plan was accepted. Quotes are verbatim from the cited plan page, from 10 plans. Rules are cited to New York General Business Law § 352-h and the Attorney General's regulations at 13 NYCRR Part 20.