We are regularly asked by clients to arrange for "an extension of finance". This is where the client has signed a Contract of Sale of Real Estate, usually with the "assistance" of the friendly real estate agent, and the loan condition has not allowed enough time for the lender to approve the client's loan application.
It is NOT simply a matter of asking the other party or the real estate agent to change the loan approval date. Sure, this can be done, and it may even result in a quick agreement to extend the approval period. But in most cases it creates an "instant death" problem.
If the request is made, but the response is not receive until after the contract has become unconditional, a purchaser can find that they no longer have the right to end the contract if finance is refused. This can result in the breaching of the contract, forfeiture of the deposit and even court action to recover the full sale price.
To obtain a finance extension safely it is necessary to give formal notice to the other party that finance has not been approved, and to confirm that consequentially the contract is at an end. The other party can then be advised that if they agree to allow the contract to be amended so as to allow more time for finance approval, the purchaser will agree to reinstate the contract, with the finance approval date amended.
Of course, it is possible that the vendor may not agree to reinstate the contract, and the property may even be sold to someone else. This is a risk to be considered when seeking the finance extension.
Need more information on this issue? Contact us.
The "Conveyancing in Melbourne Victoria" blog is, as the name implies, about conveyancers in Melbourne and regional Victoria and the conveyancing industry in which they operate. Our posts will include information on real estate questions, conveyancing procedure, the laws concerning conveyancers and the conveyancing industry (and conveyancing lawyers) and how these affect real estate consumers. For more information about conveyancing matters, visit our web page at LawyersConveyancing.com.au
Wednesday, February 22, 2012
Friday, August 26, 2011
Thursday, August 11, 2011
Wednesday, July 27, 2011
Real Estate - Rogues Or Well Meaning Fools?
I have just finished talking to a purchaser client who has received her termite inspection report. The report indicates that she must spend thousands of dollars for pest treatment because of the presence of termites.Of course, the client asked about her rights and I had to give her the same bad news I regularly give to clients in her position - the real estate agent is either a rogue or a well-meaning fool, and the client has to suffer the consequences either way.
What I mean by this is that the client trusted the real estate agent (I know, I'm always telling clients not to trust real estate agents, but they do anyway) to draft a special condition which would allow her to end the contract if there was a "pest problem".
The real estate agent readily obliged, using the standard special condition (yes, I know that's an oxymoron) distributed by the Real Estate Institute of Victoria (REIV) to its members.
Given that real estate agents are not lawyers, and are therefore prohibited from providing legal advice and drafting contract conditions (putting the obvious conflict of interests aside for one moment), any real estate agent who purports to be assisting a purchaser by inserting the standard condition into the purchaser's formal offer is either a rogue (doing it deliberately with the knowledge that the purchaser is being cheated) or a well-meaning fool (who doesn't understand the meaning of the condition being used).
Purchasers please take note! Do not, under any circumstances, allow a real estate agent to advise you on the preparation of your offer. Always obtain legal advice from your own lawyer first. Even better, take advantage of our pre-purchase legal advice and stay safe.
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Tuesday, July 12, 2011
Wednesday, July 6, 2011
Finance Approval Expiry
While providing pre-purchase legal advice to a client during their cooling off period this morning we noted that the settlement period was nearly 12 months.
The client was not aware that their finance approval would not last for such a long period of time, and that they may find that they are locked into a contract they can't fulfill if circumstances change and they can't access finance.
To make matters worse, the real estate agent had drafted the contract with a 20% deposit requirement, and a special condition stating that the deposit must be released early. All kinds of legal arguments will come into this one!
Needless to say, our advice will be to cool off, and renegotiate the purchase!
Visit our website at www.LawyersConveyancing.com.au.
The client was not aware that their finance approval would not last for such a long period of time, and that they may find that they are locked into a contract they can't fulfill if circumstances change and they can't access finance.
To make matters worse, the real estate agent had drafted the contract with a 20% deposit requirement, and a special condition stating that the deposit must be released early. All kinds of legal arguments will come into this one!
Needless to say, our advice will be to cool off, and renegotiate the purchase!
Visit our website at www.LawyersConveyancing.com.au.
Holding Deposit? No Such Thing!
When a purchaser wants to submit an offer on a property the estate agent will often request what is termed a "holding deposit". It is important that consumers understand that there is no such thing as a "holding deposit" in real estate.
The term "holding deposit" implies that once the requested amount (usually $500 or $1,000) is paid the vendor cannot sell the property to anyone else. Of course, the purchasers believe that they cannot purchase another property without losing the "holding deposit".
In fact, neither the vendor nor the purchaser is bound by the payment of a "holding deposit". The contract determines how much deposit is to be paid, and the date by which it is to be paid. The agent has no say in the matter at all. An agent who refuses to submit an offer to the vendor is not acting in the vendor’s best interests, and breaks the law by failing to communicate the offer to the vendor as soon as possible. This means that if a better offer is submitted to the estate agent, the estate agent must ignore the "holding deposit" and submit the better offer to the vendor, and vendor is free to accept the better offer.
Why does the estate agent demand a “holding deposit” from the purchaser if the agent knows that it cannot bind either party? The sole purpose is to control the purchaser. By taking hundreds of dollars from the purchaser, the estate agent creates something of a psychological hold over the purchaser, so that the purchaser is less likely to change their mind. Add to this is the knowledge that "cooling off" involves a loss of money, and the control becomes even stronger.
Estate agents who demand a "holding deposit" should be asked whether the vendor has confirmed to the estate agent that no further offers will be entertained after the payment has been made. Only if an acceptable response is received should the payment of a "holding deposit" be considered.
Visit our website at www.LawyersConveyancing.com.au.
The term "holding deposit" implies that once the requested amount (usually $500 or $1,000) is paid the vendor cannot sell the property to anyone else. Of course, the purchasers believe that they cannot purchase another property without losing the "holding deposit".
In fact, neither the vendor nor the purchaser is bound by the payment of a "holding deposit". The contract determines how much deposit is to be paid, and the date by which it is to be paid. The agent has no say in the matter at all. An agent who refuses to submit an offer to the vendor is not acting in the vendor’s best interests, and breaks the law by failing to communicate the offer to the vendor as soon as possible. This means that if a better offer is submitted to the estate agent, the estate agent must ignore the "holding deposit" and submit the better offer to the vendor, and vendor is free to accept the better offer.
Why does the estate agent demand a “holding deposit” from the purchaser if the agent knows that it cannot bind either party? The sole purpose is to control the purchaser. By taking hundreds of dollars from the purchaser, the estate agent creates something of a psychological hold over the purchaser, so that the purchaser is less likely to change their mind. Add to this is the knowledge that "cooling off" involves a loss of money, and the control becomes even stronger.
Estate agents who demand a "holding deposit" should be asked whether the vendor has confirmed to the estate agent that no further offers will be entertained after the payment has been made. Only if an acceptable response is received should the payment of a "holding deposit" be considered.
Visit our website at www.LawyersConveyancing.com.au.
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