Not settling on settlement date

[GreenTreeFrog]

We have an issue where finance might not come through and a purchaser would have to pull out of a deal with a $110,000 loss which is the 10% deposit.

Has anyone ever done this before and then had a problem where the vendor sues them for the difference between what they were going to buy it for, and what the vendor has now accepted from someone else? Assuming there is a difference and the new sale price is less that the first deal.

I have never heard of it happening but it is a real concern to the purchaser who is almost resigned to sacrificing the $110k but fears the unknown amount that the vendor might sue for.

The conveyancer they are dealing with had never had this happen before so hasn't had much advice other that what "could" happen.

Thanks!

 

[alexlee]

If it is in NSW, what the heck was the buyer thinking letting the cooling off period lapse before getting loan approval?

 

[GreenTreeFrog]

Yep NSW.

The original plan was to sell the Warriewood property but they decided to not go through with that as advice was that they would be able to secure the loan on assets and income. Then a caveat issue has come up, preventing finance from going through. See this thread: http://www.somersoft.com/forums/showthread.php?t=72198

 

[Mick C]

Hi Green- we meet again...im guessing your the selling agent?

Anyway to answer the question; i have had this happen twice- both time was due to the client losing their job mid way of settlement and not able to find a replacement job in time

The vendor can and most likely will sue for the;
1. Difference in contract price
2. interest on the Days it stays on the market "unsold" + the 42 days past settlement days - 10% PA is the standard interest rate on most sale contract in NSW...
3. Pay for legal fee + agent's re auction/marketing fee is charged

End of the day it's up to the vendors discretion which part she wants to recover if any, but i can tell you now..if they decide to recover the lost; they will ask for for all 3!!!


SO if the buyer knows for sure they can't settle, it's best to contract the vendor and you may be able to work out a "set price" to exit if any.
Another solution is to; get the finance approved ASAP...if your dealing with the bank direct; consider going to a broker and finding a different bank/loan structure OR get a bridging loan/ vendors finance OR extend settlement( only do this if finance CAN be approved- yes there may be fees involved )

Regards
Michael

 

[GreenTreeFrog]

No, it is a relative.

Thanks for you advice. It is really appreciated.

 

[smg]

You would be best to have the parties agreed to mutually rescind and set a fee for out of pockets and have the agent find a new buyer to make the reality of it easy and save a lot of money for all concerned. Why would a purchaser lock in before formal loan approval? And why would a conveyancer not check with tehir client they have enough funds to pay the loan before exchange?

 

[Ausprop]

the courts are clogged with this stuff at the moment. will they sue? probably. if the contract is stitched up properly it's a no brainer. Depending on your clients position they need to review their asset protection and if the property is sizeable then prepare for possible bankruptcy. the deposit does count towards the losses tho. the problem occurs when the seller engages some over paid lawyer because they can stiff it to the buyer as part of their damages. If it goes to trial (unlikely because what is the defence?) then these costs would be taxed but the defence would be $100-200k anyway

 

[Aaron_C]

the courts are clogged with this stuff at the moment. will they sue? probably. if the contract is stitched up properly it's a no brainer. Depending on your clients position they need to review their asset protection and if the property is sizeable then prepare for possible bankruptcy. the deposit does count towards the losses tho. the problem occurs when the seller engages some over paid lawyer because they can stiff it to the buyer as part of their damages. If it goes to trial (unlikely because what is the defence?) then these costs would be taxed but the defence would be $100-200k anyway

No Tax Master would provide legal costs of 100-200k on such a small matter

 

[Ausprop]

No Tax Master would provide legal costs of 100-200k on such a small matter

no one has alleged the amount of damages yet? all we know so far is that it is at least $110k.

i disagree anyway, even if it is capped at that. it is not unusual for each side to spend more than the loss in legal fees. Squabbling over $110k could easily cost each side $150k

 

[tom32]

the problem occurs when the seller engages some over paid lawyer because they can stiff it to the buyer as part of their damages. If it goes to trial (unlikely because what is the defence?) then these costs would be taxed but the defence would be $100-200k anyway

Best bet is for the buyer attempting to rescind to make a fair offer now. That way should a court later award less they get costs up to the point of the offer which was greater than the court assessed damages off the seller even though they "lost".

 

[tom32]

Why would a purchaser lock in before formal loan approval? And why would a conveyancer not check with tehir client they have enough funds to pay the loan before exchange?

A) Why would the purchaser lock in before finance? Because they bought at auction conditions or they wanted to press for a good price. At present you can get significant discounts if you go in unconditional, especially because lots of conditional sales are falling through. going unconditional is probably worth 5% of the price at the least so if you think you can go unconditional do it. You can of course get your lender to pre approve and actually value the joint but who does this for every auction they attend?

B) Why would the conveyancer not warn them? They probably did. Mine has warned me when I recently put in an unconditional offer and explained I would be signing a 66W form, but I still wanted to go ahead and do it. My bank warned me also that it needs valuation as some props do some don't this was acreage so it did, but I could cover up to a 100k shortfall in the val and maintain 20% equity not effecting the rate etc so I was pretty comfortable with going ahead with it. My conveyancer said about auctions a lot of people get vals pre auction but I do not see this in the real world TBH...

I guess it goes without saying but if you buy unconditional make sure you have the resources to make good on your responsibility to complete. It is worth it if you can though i.e. don't put conditions in an offer if you don't have to, it affects the merit or otherwise of acceptance of your offer.

 

[GreenTreeFrog]

Well the deal was supposed to settle yesterday and they have not been able to secure financing despite over $2 mill in assets with only a $100k LOC against one property, all to do with the caveat. Plenty of income to support the deal as well but structured as a contractor so the banks, both CBA and ANZ have said No three times each!

Now we move onto the interesting part... lets see what happens!

 

[Rolf Latham]

both CBA and ANZ have said No three times each!

lets see what happens!

probably not a lot...............sounds like an avoidable mess to me.

Their CRAA possiby looks like Ravioli now.

ta
rolf

 

[GreenTreeFrog]

Avoidable how Rolf? I would be curious to what you would suggest to do differently.

They went through a broker for the ANZ deal.

How many notes on their credit rating would each bank put when just reassessing the same deal two or three times?

 

[Rolf Latham]

Hi GTF

I dont know the details, so I can only comment in general, I dont want to be critical, I just want to avoid people in the future falling into the same overwhelm anxiety/panic mode which is the normal human reaction.

We get a deal at this end of the transaction on our table 3 to 4 times a year, and its usually rescueable in some way.

If a borrower or a broker goes back to the same lender with the same deal 3 times.........................usually result on nothing but a bloody forehead and a cooked craa file, especially with ANZ.

At a worst case end of the world scenario, a lender like Pepper or Liberty may be of help even still.

I know people are sick of me saying it, but just because your bank or broker ( or even 2 or 3 brokers) say it cant be done, doesnt make it so............

Part of me suggests 6 attempts would have been better spread over 3 or 4 funders

Lets go back to basics here, if they are in NSW, they still have close to 2 weeks to pull some rabbits.

Have they pulled their credit file
Have they got copies of all comms between the lenders and the broker.

Im sure one of the brokers here will have a go at it with a success fee of only 25 % of the deposit savings

ta
rolf

PS..........Unless there is a structural policy reason, ANZ would be close to my last lender attempt for anything even marginally curly.............

 

[Terryw]

Treefrog

Is this the same property as in http://www.somersoft.com/forums/showthread.php?t=72198

I pointed out a few strange anomolies in that thread. Doesn't make sense that they cannot get finance.

 

[GreenTreeFrog]

Yes same thread.

I agree Rolf on trying the other lenders, that is what I would have done. Everyone has there own agenda and this person had theirs. I also agree on the anxiety and panic affecting rational decisions.

They have an extended settlement, another 4 weeks to settle. They have given them two weeks interest free and then the vendor starts charging interest... 12% on 1.2 mill!!

If it were me, I would still be trying for the loan but the person has decided there are too many negative issues telling them not to go ahead so they are now prepared to cut their losses.

 

[Rolf Latham]

If it were me, I would still be trying for the loan but the person has decided there are too many negative issues telling them not to go ahead so they are now prepared to cut their losses.

You know what, I do understand that.

Sometimes things happen for a reason and we should be guided by them

ta
rolf

 

[Mick C]

Treefrog

Is this the same property as in http://www.somersoft.com/forums/showthread.php?t=72198

I pointed out a few strange anomolies in that thread. Doesn't make sense that they cannot get finance.

DW terry- im in the same basket as you- no idea why they can't get their finacne??

1. 2m in asset- with a 100k loan only....GOD that's 1.9m in equity...any small bank will would a piece of that!

2. Caveat- not an issue with a few non-conforming lender...also it sounds like you only have a Caveat on ONE of the three property

3.Good income- still dont see the issue

My advise...stop speaking to the big 4 banks....start to widen the net and this will save you the headace + $$$

Lastly, i suggest your friend give ROLF a call to see if it's a possible save- time is the essence here, im sure ROLF dont mind giving a few free pointers over the phone and hopefully saving the deal for your friend.

Regards
Michael

 

[Terryw]

Yes same thread.

I agree Rolf on trying the other lenders, that is what I would have done. Everyone has there own agenda and this person had theirs. I also agree on the anxiety and panic affecting rational decisions.

They have an extended settlement, another 4 weeks to settle. They have given them two weeks interest free and then the vendor starts charging interest... 12% on 1.2 mill!!

If it were me, I would still be trying for the loan but the person has decided there are too many negative issues telling them not to go ahead so they are now prepared to cut their losses.

I find it all very strange. Walking away from $110,000 like that. There must be other things you don't know about.