Releasing deposit to vendor prior to settlement

[Risky Business]

G'day all,

Just wondering if anyone has any thoughts or knowledge on this matter.

I am currently looking into a purchase where the vendor is in need of cash to keep their head above water and it looks like the PPOR has to go.

I have not had contact with the vendor directly and have limited info about their situation. I am going to make a few assumptions about their situation.

It appears that husband and wife have separated recently (6 months or so.) Wife lives in house. Husband has moved on to better things. Wife is struggling/not making payments on the mortgage. LVR may be about 85%. Unknown structure of ownership. I am assuming that they hold the property as joint tenants. Wife wants to sell the property, and believes husband will sign whatever is required to finalise the separation process.

I am interested in purchasing the property below market value. My sweetener to the deal may be the early release of deposit funds to allow her to buy the essentials and pay ongoing living expenses.

I intend on speaking to the owner shortly to ascertain her intended sale price.

I am considering the risk associated with the release of the deposit if the sale price is right.

Just a few questions though.

When would a vendor be able to sell this property without the contract being co signed by both joint tenant owners?

What risks should be evaluated when considering the early release of deposit funds?

Has anyone used an effective clause to provide maximum protection as a buyer releasing the deposit?

The residence is located in QLD. Does anyone have any thoughts, or similar transaction experiences?


Cheers

 

[Perp]

When would a vendor be able to sell this property without the contract being co signed by both joint tenant owners.

I don't think they could, unless the joint owner was mentally deficient or something and there was a power of attorney. You don't have any kind of binding agreement until you have a contract with all owners' signatures on it.

What risks should be evaluated when considering the early release of deposit funds?

The biggest risk, if in fact it's termed an "early release of deposit", is if the vendor fails to settle. I believe in this case that they can retain the deposit! You also have the issue that you usually have to pay the RE agent first out of any early release, so if she needs $5K, you couldn't just release $5K early, you may have to release commission ($10K?) plus the $5K for her, meaning you have $15K at risk.

I'd be tempted, instead of calling it an "early release of deposit", to make her a loan, which is to be repaid from the proceeds of selling the house within 3 months (regardless of whom she ultimately sells it to), and having something in there protecting your interests in case they decide not to sell any time soon, such as the ability to lodge a caveat, or a repayment plan.

If the amount you're planning to release is more than "loose change" to you, I'd definitely talk to your solicitor.

 

[Propertunity]

When would a vendor be able to sell this property without the contract being co signed by both joint tenant owners?

No, except in the case that Ozperp said - someone acting with a registered POA.

What risks should be evaluated when considering the early release of deposit funds?

There are serious risks and they are all yours as a purchaser. I saw the following experience first hand (as a selling agent in the olden days ). Purchaser exchanged contracts on a house and agreed to the early release of the 10% deposit (this is common still but not without risks as you'll see). The cash strapped vendor went and paid off debts and had a bit of a retail therapy binge. The vendor then prepared to move out prior to settlement as per normal but decided to take the "bookshelves" with him. Problem was that the bookshelves were integral to the wall frame at this stage after many DIY renos prior. New purchaser came to do the pre-settlement inspection and found a house with no wall linings/ frames missing & refused to settle - naturally, until the property was made good. The vendor having spent the 10% deposit had no funds available to make good. The bank got wind of what was happening and sent a valuer to do a 2nd inspection. Bank naturally decided it could not lend on the security property. The case dragged on for 6+ months and I'm sorry I cannot tell you what happened in the end as I left that particular agency.

But this is just one example of what can go wrong. Be careful especially if they are not using the 10% deposit to buy another property which is risky enough IMO.

Has anyone used an effective clause to provide maximum protection as a buyer releasing the deposit?

Tell me what kind of clause could have protected you from the above scenario?? No money = no money despite the best clauses in the world.

Be careful.

 

[Risky Business]

Thanks for your insight Ozperp and Propertunity.

I'm going to speak to the owner today and ascertain the full picture of her situation. I'm sure that I am making this offer more complicated than required.

I also feel that the risk is substantial considering that the "released deposit" would quickly disappear into outstanding vendor debts. If settlement didn't occur, I don't think I'd be seeing the $ in my account again without a fight. I'd be considering a caveat very early into having an interest in the property.

I had considered a loan product as you suggested Ozperp. I started scratching my head about where to start though. I'm not sure what legal requirements there are on me lending funds. It would all be new to me.

I'll speak to the owner, then a solicitor and keep you posted.


Cheers

 

[MTR]

I have been through the same process 3 times in the last month. This was new to me.

As part of settlement my solicitor dealt with this, providing finance details on each property owned by each vendor, ie bank loan on each property, which bank etc. I then discussed it further with my solicitor to determine the risk.

One of the properties was owned outright the other 2 properties were below 80%LVR with the lenders, I was happy to release all.

My understanding is that the solicitor would not recommend early release if the vendor has more than 80% LVR on each property.

Also, have not looked into this but I am told money gets released after 30 days anyway in Melb??? Have no idea if this is correct.

Cheers, MTR

 

[Collector]

I have been through the same process 3 times in the last month. This was new to me.

As part of settlement my solicitor dealt with this, providing finance details on each property owned by each vendor, ie bank loan on each property, which bank etc. I then discussed it further with my solicitor to determine the risk.

One of the properties was owned outright the other 2 properties were below 80%LVR with the lenders, I was happy to release all.

My understanding is that the solicitor would not recommend early release if the vendor has more than 80% LVR on each property.

Also, have not looked into this but I am told money gets released after 30 days anyway in Melb??? Have no idea if this is correct.

Cheers, MTR

Was it released directly to the vendor or was it released so the vendor could buy elsewhere (released from one trust account to another trust account)?

 

[Risky Business]

Thanks MTR, I agree that less than 80% LVR offers some level of protection. How did you go with the purchase?

I have just spoken with the owner and her situation is pretty desperate. Her predicament is pretty much as I listed earlier.

LVR appears to be about 82%. Her selling price is not substantially below market value though.

I have given her a price to consider and have left with a carrot dangling in front of her. Otherwise I'll keep shopping around.

 

[MTR]

Hi all
Just an update

"Section 27 Statement", vendors deposit statement to the purchaser pursuant to section 27 of the sale of land act, 1962. This is the form I mentioned earlier.

Outlines and confirms details on
- Mortgages
- Whether Mortgage does/does not provide for further advances
- The vendor is not in default under the mortgage
- The mortgagee has not consented to the purchaser assuming the vendors
obligations under the mortgage

There is no caveat lodged against the title to the property under the transfer of land act.

My understanding is that funds are released to the vendor but can only be released by the purchaser by signing this document.

As you can see above I don't believe there would be a problem as long as the criteria is met if not why would you release the funds. I see this as Solicitor's role as I have paid for it.

Have not had any problems and don't expect to.

Risky business, I possibly would not be too keen in releasing the funds not without ensuring that you are covered by similar document to section 27.

Don't u just hate all this legal stuff.

Cheers, Hope it helps.