Off-the-plan. No finance clause - URGENT help please

[arruga]

Hi
I got to an agreement on price which I'm happy with for an off-the-plan unit. Settlement is in 2015
Issue is, contract has no finance approval clause. I don't feel comfortable with not having it. My lawyers indicate that this is not right, and there should be one. Agent says that no bank will grant finance for a property where settlement is 2015, and that I should seek advice with other lawyers, as the ones that advised me have no idea.
Is regular practice not to have a finance clause in off-the-plan contracts ?

Any recommendations on off-the-plan specialist lawyers in Brisbane ? I'm not happy with my lawyers. It was actually me who spotted the lack of finance clause, not them !!
Please help
thanks
a.

 

[Shaneelastic]

standard no finance clause and the bank wont provide finance on something they cannot value at a specified time 2 years away

you wont find a solicitor who will be able to negotiate a finance clause in

 

[Peter_Tersteeg]

You're not going to get a finance clause in an off the plan purchase. No vendor in their right mind would allow the purchase to be conditional for such a long period of time, and developers have other considerations which won't allow them to accept a finance clause.

Does your lawyer actually know that it's an off the plan purchase? If they are aware of this, then they don't know much about finance.

Talking to your bank or a broker now is a good thing. If nothing changes between now and settlement, then you should be reasonably confident that you'll still be able to settle the property when the time comes. Keep in mind though, that anything said now, only has at best a 6 months lifetime. You will need to apply for finance in full a few months before settlement.

There are significant risks involved in an extended purchase such as this:

* The property value drops. Banks will only lend against the value of the property at settlement and may not simply accept the purchase price in 2 years.

* Your income changes adversley. If your income drops you may not qualify for the loan in 2 years.

Keep in mind if something happens that means you can't get finance, you are still expected the purchase the property. If you can't, you'll loose your deposit and may have to make up the difference between your offer and what they end up selling it for.

Most of the plan purchases end well, but I've seen some bad ones too.

 

[Ausprop]

yes it's normal. even if you get a finance approval there is nothing to say the bank will still be lending in a couple of years - happened to me when Macquarie decided to stop being a bank for a while... I think they are one again who knows. Personally I wouldn't take this risk on. a bull market can come and go in this time

 

[Aaron_C]

If your lawyer is aware that this is an OTP purchase, and insists on a finance clause, then they are an idiot.

Do what Peter suggested - but in reality you just have to wait until about 1-2 months prior to settlement/completion before you can actually apply for finance.

 

[Ausprop]

oh another thing - put the contract into a stand alone entity. if it all goes horribly wrong you will want to contain the damage

 

[Terry_w]

Get a new lawyer.

No one is going to give you a finance clause on a 2 year settlement. No bank is going to give you approval either, until just before settlement is due.

Consider the risks involved. Consider the opportunity cost - of waiting and not buying anything in the meantime because you are worried about qualifying for finance for the OTP one.

 

[arruga]

oh another thing - put the contract into a stand alone entity. if it all goes horribly wrong you will want to contain the damage

Thanks for all comments. I cannot believe such poor advice from lawyers...unbelievable ! Anyway...can you please expand a bit on the stand alone entity ? what does this mean ? any link ? any lawyers in Brisbane to recommend ? Thanks

 

[Terry_w]

RPI of this forum is a QLD property lawyer.

 

[sanj]

Thanks for all comments. I cannot believe such poor advice from lawyers...unbelievable ! Anyway...can you please expand a bit on the stand alone entity ? what does this mean ? any link ? any lawyers in Brisbane to recommend ? Thanks

basically if you sign the contract in a corporate trustee that has no cash or assets then the max that you can lose is the 10% deposit.

if you buy it in your name and youre unable to complete the contract in a few years then potentially all your personal assets are at risk

 

[Truly Exotic]

Thanks for all comments. I cannot believe such poor advice from lawyers...unbelievable ! Anyway...can you please expand a bit on the stand alone entity ? what does this mean ? any link ? any lawyers in Brisbane to recommend ? Thanks

maybe the lawyer got his degree from the back of a kellogs Coco Pops pack, the ones where you buy 3 and they send you something

 

[Terry_w]

basically if you sign the contract in a corporate trustee that has no cash or assets then the max that you can lose is the 10% deposit.

if you buy it in your name and youre unable to complete the contract in a few years then potentially all your personal assets are at risk

Assuming there are no special conditions or guarantees.

Another option if purchasing as a couple is to contract in one name only and add the other before settlement. If it goes down only the contracting party may be liable. Check with your solicitor for stamp duty issues.

 

[cu@thetop]

If your lawyer is aware that this is an OTP purchase, and insists on a finance clause, then they are an idiot.

Do what Peter suggested - but in reality you just have to wait until about 1-2 months prior to settlement/completion before you can actually apply for finance.

I regularly and idiotically throw in special conditions with finance- approval in 21 days but then subject to bank valuation in the 14 day period prior to settlement. Developers hate it but if it is early enough in the sales process and they are hungry they may bite.

Not a big fan of OTP buys in the usual case. If a large development there may be a secondary market at settlement time for same or reduced prices.

 

[Aaron_C]

I regularly and idiotically throw in special conditions with finance- approval in 21 days but then subject to bank valuation in the 14 day period prior to settlement. Developers hate it but if it is early enough in the sales process and they are hungry they may bite.

Not with construction completion 2 years out. Ain't gonna happen.

 

[Ausprop]

I regularly and idiotically throw in special conditions with finance- approval in 21 days but then subject to bank valuation in the 14 day period prior to settlement. Developers hate it but if it is early enough in the sales process and they are hungry they may bite.

Not a big plan of OTP buys in the usual case. If a large development there may be a secondary market at settlement time for same or reduced prices.

* like *

if you are flipping you could still take a hit but at least your downside is limited.

 

[Ausprop]

Not with construction completion 2 years out. Ain't gonna happen.

agree it seems pointless from the vendor's POV but it sounds like cu has done it?

 

[sanj]

I regularly and idiotically throw in special conditions with finance- approval in 21 days but then subject to bank valuation in the 14 day period prior to settlement. Developers hate it but if it is early enough in the sales process and they are hungry they may bite.

Not a big plan of OTP buys in the usual case. If a large development there may be a secondary market at settlement time for same or reduced prices.

how often does it work?

 

[sydprop]

oh another thing - put the contract into a stand alone entity. if it all goes horribly wrong you will want to contain the damage

I have been reading the obvious warnings about OTP in an SMSF - but now that I think about it, the liability against other SMSF assets must be limited by definition via the holding trust etc?? or do I have this wrong....

 

[mattnz]

Answer the following questions before proceeding:

1. How certain are you that its a good deal in the current market?

2. How much do similar properties that are a year or 2 old sell for in that location? (This is likely to be the best benchmark for what valuers would value at in the current market. Note that this is sales price, not advertised price)

3. If the valuation came in 5-10% short of the sale price at settlement, how much trouble would you be in?

4. Is there a reason you aren't buying an existing property that you could have the finance clause in the contract for purchasing?

If you are going to create an entity to purchase in, request a 5% deposit as well, to really limit potential losses.

If you send me some details, I'd be happy to check it out for you on RP Data first if you don't have access to sales data. Just send me your email address.

Cheers,
Matt

 

[ricflair]

RPI of this forum is a QLD property lawyer.

I used another solicitor recently but asked RPI for some advice, my conveyancer / solicitor was very basic and didn't really know their stuff.
Darryl/ RPI is really switched on from my conversation with him, I will be using him next time.....