Finance Clause - watch yer dodgy broker

[Dazz]

Hi all,


This came across my desk this afternoon. Quite an interesting read. Thought I would share, as I gained a lot from Terryw's posting the day before.


It looks as if the Buyer put a bog standard finance clause on the Sales Contract that was accepted by the Seller, then proceeded to listen to their mortgage broker when he told them don't even both applying to the Bank, they'll reject you outright which will go against your credit rating....so they did what the broker advised them.....and then the **** hit the fan !!


My take from all this.....brokers / advisers / reps are all there to assist you. You as the Buyer or Seller are the Principal of the deal and must ultimately make the decision.....and wear the consequences of those decisions.

As such, you need to understand what the hell you are doing, and take the wheel....never surrender it to your broker / solicitor etc.....they'll steer your ship straight into a reef and then bugger off into the night. Only you can the be the Captain.


http://www.kottgunn.com.au/updates/brokers_beware_subject_finance_clauses


Enjoy !!

 

[Aaron_C]

Just shows that people should talk to their broker first before making an offer

 

[Deltaberry]

Interesting case. In short, if you want to use the clause, you need to:

a) at the very least apply to the lender that you specify and have them reject your app;

b) potentially apply to all lenders and have them all reject

Simply having an intermediary tell you it won't work will not be good enough. Not sure if that's a case of "dodgy" broker or "lazy" and "conceited" broker. All the broker needed to have done was forward the app to ANZ and it would've saved the purchasers. But instead the broker jumped to a conclusion and didn't take the crucial step of forwarding the loan app.

 

[Aaron_C]

I wonder if the broker's PI insurance will cover it. But the broker's advice was actually prudent in the circumstances - there's no point submitting a client's loan if you know it's going to be rejected. It's bad for the client's interests and also bad for yours.

 

[handyandy]

But who's to say that the broker actually stuffed up.

Maybe it was buyers remorse and a discussion along the lines of how the buyer can get out of contract with a solution proposed by broker 'i will give you a letter'.

There could be many sides to the story that didn't come out, even in court.

Cheers

 

[NBS]

Interesting read thanks Dazz

I assumed you alway put in that section "subject to suitable finance" or wording similar.

Naming of "a" lender was a dangerous move, appears to have been the case. Of course signing a contrat without knowing you will get the funds is not a smart move either.

Brian

 

[KarenMcGlinchey]

Karen McGlinchey - solicitor

The situation in NSW is better as the subject to finance clause is not now used. The buyer has cooling off rights so in that period the buyer can sort out finance, get inspections etc. If the buyers gets out of the contract under the cooling off provisions - they do not need to give a reason. Of couse there is a penalty ( 0.25% of the contract price) and this prevents buyers signing up to multiple contracts and cooling off on all of them.

 

[vaughan]

Thanks for posting.

 

[Peter_Tersteeg]

Very interesting article, quite an eye opener.

I don't really see that the broker did anything wrong in this case.

No broker (or banker, or solicitor, or just about any other service provider) has any obligation to do work for anyone, especially when they beleive it to be a basket case from the start.

Had the broker had any reasonable expectation of this outcome, I'm sure they would have put together a quick application. Keep in mind however that the law also prohibits brokers (and lenders) from applying for and providing credit which they believe to be 'inappropriate'.

So the broker can make an application to the lender and put in their notes, "I believe this loan to be inappropriate, please decline this application". Of course if this were presented in court, the same ruling would likely apply because the broker didn't make an honest effort (and then the broker actually might be liable).

Furthermore it would negatively effect that borrowers ability to secure finance in the future. Loans get declined every day because some people simply have too much activity on their credit file. Overall I'd suggest the broker reasonbaly acted in the purchasers best interests.

So who is at fault here? The REIQ could word the finance clause in the standard contract to better cover the purchaser, but the contract isn't written with the purchasers interests, so they're not at fault.

The solicitor or conveyancer is giving legal advice to the client, so they might have advised the client to have the finance clause re-written. It's a bit too late though if the legal people don't see the contract prior to it being signed. Even if they had, it's unlikely it would have been flagged as a potential problem.

Ultimately it comes back to the purchaser. They didn't seek lending advice from the broker prior to signing. It's also unlikely that they sought legal advice on the contract they were signing.

In truth though, I think it's a dodgy ruling, even if it is taken to the letter of the law. I hope that solicitors will be demanding that the finance clause is updated on all standard contracts.

 

[Peter_Tersteeg]

Naming of "a" lender was a dangerous move, appears to have been the case. Of course signing a contrat without knowing you will get the funds is not a smart move either.

Not naming a specific lender is also a dangerous move. It exposes the purchaser to be forced by the vendor to apply to all manner of lenders which might not be suitable.

 

[Terryw]

I dont see how the broker could be at fault. His job is to apply for finance and not interpret clauses in a legal contract. The purchaser should have used a solicitor to do that job.

 

[Aaron_C]

I dont see how the broker could be at fault. His job is to apply for finance and not interpret clauses in a legal contract. The purchaser should have used a solicitor to do that job.

But everyone blames the broker if something f**ks up!

 

[Rolf Latham]

We have been advised to either

1. Not provide any advice or
2. Tell it as it is.........I dont thinkI can get this through but someone else might

ta
rolf

 

[Terryw]

as a broker you wouldn't want to be wasting time putting in applications just to have them rejected either. You would have to charge a large brokerage to such a client.

 

[Jamie M]

I dont see how the broker could be at fault.

Totally agree. I thought this was going to be some juicy story. I can't see what he/she has done wrong.

Cheers

Jamie

 

[Mick C]

Keep in mind however that the law also prohibits brokers (and lenders) from applying for and providing credit which they believe to be 'inappropriate'.

.

Great point!

End of the day the buyer should have spoken to their conveyancer broker/banker first before signing ANY contract; the conveyancer would have advise them to get their finance in place and the broker/banker would have been able to tell them what the chances of approval would have been.

Regards
Michael

 

[lizzie]

Just shows that people should talk to their broker first before making an offer

A proper investor does (ie, me ). Poor Rolf gets questions regarding so many purchases that don't go thru for so many reasons ...