Pulling out of unconditional contract, help!

[katie_erin]

My partner and I are in the process of purchasing a property in QLD. We are borrowing 100%. I joint own another home with my mother that I am using as security. Because I am doing this, she has to go guarantor. At the very beginning before we applied to proceed with the loan. The mobile banker explained that my mother has to guarantor 20%. Once the loan gets down to 80% LVR, she will automatically be released from being guarantor.
Time has passed and we received approved finance, making our contract unconditional.
A week before settlement my mother recieved her contract to sign and written in her contract says that she is guarantoring the ENTIRE loan amount for the life of the loan.
Now she refuses to sign it because that wasn't what she agreed to, etc...
I've contacted the bank endlessly and they keep leading me around in circles and im not getting anywhere with getting this resolved.
Settlement is tomorrow! There is no way we will have the loan money by then and now I am freaking out about what to do.
Our solicitors advised us to go through other finance and extend another few weeks, which will cost us. I don't want to go through all this hassle again just to be put in the exact same position OR get near settlement again and have my mother refuse to sign again.
My partner and I feel comfortable forfeiting the sale, running the risk of being sued and keep fighting the bank that messed their contract up.
Through my eyes it was such a simple error for the bank to fix.
I want to fight them on this because they have caused my family tonnes of stress.
Help, what should I do?

 

[BuildingBlocks]

So the issue is the finance contract, not the property contract.

You will lose whatever deposit you have put down so far for a start if you try and walk.

Follow the solicitors advice, delay settlement (there will most likely be penalties) and try to arrange settlement with the terms you need.

Call one of the well known brokers on this site today and ask them if they think you have a chance of doing what you are trying to do.

 

[Marjac]

Sounds like your Personal Banker has given you some incorrect advice (not untypical), very few lenders will accept a limited Guarantee.

Good luck in finding suitable finance

 

[Terryw]

That is the trouble with jointly owned property.

One way around it is to just set up a LOC on the house with mum for the 20% and then use this as deposit and borrow the other 80% from a different or the same lender.

If settlement is tomorrow then I don't like your chances of getting it done in time. The vendor could issue a notice to complete any time after settlement date and then you would have 14 days to settle (Maybe shorter of longer in QLD, not sure). After that they can terminate the contract and keep your deposit and possibly sue you for damages.

 

[Ed Barton]

That is the trouble with jointly owned property.

One way around it is to just set up a LOC on the house with mum for the 20% and then use this as deposit and borrow the other 80% from a different or the same lender.

will the OP lose tax deductibility of the 20% though?

 

[Terryw]

will the OP lose tax deductibility of the 20% though?

No. It will be a loan from mum/her to her.

 

[alexlee]

That's an interesting point. Do banks usually offer limited guarantees?

 

[wylie]

We have a limited guarantee for our son to the value of one-fifth of his mortgage. This was St George, but the same deal was offered by Westpac.

 

[Ausprop]

the property that you jointly own with your mum is at risk here from litigation. Is it her residence or just an IP? take stock of your assets, noting whose name your cars are in etc.

 

[NataleaK]

It doesn't matter what the bank told you before they presented you with mortgage documents.

The mortgage documents are their offer to you. You should not have confirmed finance approval (and made your contract unconditional) until the mortgage documents were signed and returned to the bank.

Sorry, but this is your own doing.

 

[Dazz]

^^^^^

Best post of the week NataleaK....

This is where it all went to custard IMO ;

The mobile banker explained that my mother has to...

Anyone representing one side of a contract who accepts and relies upon verbal contractual advice from the other party to the contract without first reading the full written contract needs their head read and their bum kicked.

No point getting angry with anyone but yourself.

Kudos to your mother and your Bank, they have both acted with full integrity.

Help, what should I do?

Take the financial pain of breaking an unconditional contract when you were in absolutely no position whatsoever to enter into an unconditional contract.....and then learn the lesson well....I don't think you'll make that mistake again in a hurry.

You can take heart that you are amongst the vast majority of all Australians who do not read the fine print of a contract, and simply rely on the other party to the contract to "tell" you what the documents sort of says. This is the root of everyone's contractual problems....but alas, fear and laziness are very strong barriers which most are never able to overcome, and hence we shall see this situation time and time again, as we have in the past.

 

[Mick C]

That's an interesting point. Do banks usually offer limited guarantees?

St George does...NAB has JUST entered this market as well + some another lenders say they do ( but have never tested their waters...)

With settlement days away; it be very very hard to find a different lender that will take this up ( most lenders have a rule where they will not take up a new case 2 weeks leading to settlement) ; ur best bet is to speak to the dragon again; as they allow limited guarantees....if worst comes to worst do what terry has suggested - but time is not on your side that's for sure...and the bank knows this; it may be a matter of live and learn...sigh bank managers.

Regards
Michael

 

[tom32]

As others have suggested see if your mum can take out a loan on 20% of her property and "gift" it to you.

That will achieve the same ends, i.e. she is putting 20% of her property at risk only not full property.

The bank then views the loan differently due to the higher percieved equity you have in it.

You can even tell the bank often it is a gift, they don't care as she has no hold over the property.

You pay her interest on the 20% stake she has given you covering her mortgage the rest you pay to the bank.

That is what I would be doing, and in terms of trust she already trusted you for 20% of her property, now she is still just trusting you with 20% of her property. The final position she would be in if you defaulted would be the same, she loses 20% of her equity in her property.

Another thing to point out your mum understands in the case you default it does not mean the bank automatically take her entire property. She is only responsible for the shortfall and it is highly unlikely this will be the full amount of her equity in her 100% owned property?

What are the values of the two? If her house is say 1million and the one you are buying 300k, it is likely even in doomsday scenarios she will only lose 20% of the equity in her house irrespective of whether the bank has a hold on the whole property.

i.e. your 300k house you stop paying repayments the bank leaves you alone for 12 months before moving in.

You now owe 320k.

House falls in value by 150k

Bank realises the asses through a mortgagee sale.

Total shortfall 170k.

Bank costs 30k

200k i.e. 20% in this case, of course that is pretty severe, 50% fall in house price? If its a development block it is possible I guess.

You probably want to run some of these scenarios for her?

Secondly as time passes, i.e. you have 20% equity she really is only a claytons guarantor anyway, the property in 10 years time should be worth more and secondly you have a 20% equity stake so you could refinance to get her out if necessary at that time.

I guess they are your two options to escape as I see them and I have no idea if your mum or some other friend is willing to help?;

A) convince your mother or someone to "gift" you 20% and then live frugal and try to pay her back on top of your mortgage.

B) convince her that putting her whole property on the line does not necessarily amount to it all being at risk except in the most severe doomsday scenarios where the bank recovers virtually nothing from the sale of your new prop. You would need to know the worth of this property against the one you are buying to guage this. If things are reversed above, i.e. what you are buying is 1M and she owns a 300k prop then of course it is all well and truly on the table in a default scenario, she could lose the whole lot in a heartbeat...

 

[alexlee]

Actually, given that she is the co-owner of the property with her mother, that property IS at risk if she defaults because the bank will go after her half.

 

[Marty McDonald]

Tell your lovely mother that a mortgagee can't sell 20% of a house so if the guarantee is called on and she can't cover the limited guarantee amount the lender can sell the house anyway. I would also tell her if she doesn't sign you may be sued and the house being your asset may be persued as recourse ie sold wether she likes it or not.

Step 1 Get her to sign

step 2 Restructure the debts to get both properties stand alone ie 80% of debt against the new purchase / 25% against the existing property.

 

[Terryw]

Actually, given that she is the co-owner of the property with her mother, that property IS at risk if she defaults because the bank will go after her half.

The property would still be at risk, but much less risk than if it was being mortgaged. If it is not mortgaged the lender would have to go and get a judgment against the daughter and the further legal action to get at the property.

If mortgaged they would probably get the right to possession without having to go to court. All they may have to do is to serve a few written notices and then kick out the owners.

 

[Terryw]

Tell your lovely mother that a mortgagee can't sell 20% of a house so if the guarantee is called on and she can't cover the limited guarantee amount the lender can sell the house anyway. I would also tell her if she doesn't sign you may be sued and the house being your asset may be persued as recourse ie sold wether she likes it or not.

Step 1 Get her to sign

step 2 Restructure the debts to get both properties stand alone ie 80% of debt against the new purchase / 25% against the existing property.

This solution may be the best because of the time constraints. Just settle on the property (after fully explaining the risks to mum) and then immediately restructure it ( it would annoy the mobile banker too!).

 

[coastymike]

Mum is the smart one. Sounds like you need to learn from her and listen to her as she is wise one.

1. She didn't agree to guarantee the entire loan
2. She has read the documents indicating by signing as guarantor she will be doing so.
3. She will not be signing a contract she doesn't agree to

Smart woman. Wish more parents were like her.

 

[Ausprop]

Mum is the smart one. Sounds like you need to learn from her and listen to her as she is wise one.

1. She didn't agree to guarantee the entire loan
2. She has read the documents indicating by signing as guarantor she will be doing so.
3. She will not be signing a contract she doesn't agree to

Smart woman. Wish more parents were like her.

I can't see why you think she is so smart - she is in a trap. her best option is to go in deeper

 

[Peter_Tersteeg]

This looks like the jointly owned property has been cross collateralised with the new property, hence Mum has to guarantee the whole lot.

The right way to do this would be to split the loan for the new purchase into two parts. 20% guaranteed by Mum and the remaining 80% solely against the new property owners. This structure is quite common for family guarantees with all of the major lenders these days.

It sounds like the mobile banker screwed things up very nicely.

Request the loan be restructured properly. It'll take about a week. Ask the bank for compensation of the penalties as they should have gotten it right in the first place.