Subject to Finance Contract

[oc1]

Hi all,

I had a purchaser pull out of a contract today. He provided a letter from their broker stating that finance could not be obtained. The funny thing is the purchaser sent me his pre-approval from the financier (Collins Securities) 2 weeks ago.

Can the purchaser back out in this instance? Surely a letter form your broker can't be enough to back out of a sales contract??

 

[Player]

Hi all,

I had a purchaser pull out of a contract today. He provided a letter from their broker stating that finance could not be obtained. The funny thing is the purchaser sent me his pre-approval from the financier (Collins Securities) 2 weeks ago.

Interesting that the buyer sent you the pre-approval. Were you dealing with the purchaser direct or thru a real estate agent?

Can the purchaser back out in this instance?

I would envisage that they could if they had a fluffy all-encompassing clause such as......"finance to the purchasers unreserved satisfaction"..............however knowing you, it is not likely you allowed such a "get out of jail free" card to be played

Surely a letter form your broker can't be enough to back out of a sales contract??

I wouldn't think so. Ask for a scedule of reasonable steps that the purchaser and MB took to secure finance.

Oscar,

I imagine it would depend upon the exact wording of the "finance clause" although with evidence of pre-approval (naively given to you by the rescinding puyrchaser) this strengthens your case for recourse against them.

MB's, lawyers and others who use and deal with finance clauses regularly may be able to comment more on the mechanics of rescinding under those terms.

I mostly am pre-approved and ready to go so the absence of such a clause usually gives me some discount or a longer settlement with terms more suited to me as the vendor has certainty of funds proceeding.

 

[boods99]

Suprisingly enough, the finance clause attached to the standard REIWA O&A contract has provisions enableing you to advise of non finance approval via a letter from your broker.

Would have thought that they would have plugged that one up a long time ago!

Boods

 

[Propertunity]

..... the purchaser sent me his pre-approval from the financier (Collins Securities) 2 weeks ago.

Just remember pre-approval is not formal approval. Pre-approval simply means that on face value, with what info the intending purchaser has provided, that he should be able to get finance, however, it is subject to:
1. Valuation on the subject property (the val may not have come up to the purchase price)
2. MI approval (this may not have been forthcoming)
3. Provision of payslips, credit card statements, savings history records, etc etc - all of which may have ultimately been unacceptable to the lender

Can the purchaser back out in this instance? Surely a letter form your broker can't be enough to back out of a sales contract??

Oh, I'm sorry to say it probably is ....along with the other things Player has said in his post.

 

[Rolf Latham]

Can the purchaser back out in this instance? Surely a letter form your broker can't be enough to back out of a sales contract??

Given the obligations on a broker vs lender under the NCCP, the broker's letter probably has more worth.

ta
rolf

 

[Peter_Tersteeg]

I've occasionally had to write a similar letter. A few times there wasn't even an application to a lender, just that in my opinion, the purchaser would not be reasonably able to obtain finance. It's never been questioned.

Keep in mind, most brokers would be reluctant to lodge an application with a lender if we know it won't be approved. It costs time and money to lodge applications, and many lenders penalize brokers for applications that don't settle.

Strange though that they had a pre-approval. Usually at that point it's just down to the lenders approval of the security property. Perhaps the valuation came back below what they're paying for it, or the property is outside of the lenders policies?

 

[oc1]

I've occasionally had to write a similar letter. A few times there wasn't even an application to a lender, just that in my opinion, the purchaser would not be reasonably able to obtain finance. It's never been questioned.

Keep in mind, most brokers would be reluctant to lodge an application with a lender if we know it won't be approved. It costs time and money to lodge applications, and many lenders penalize brokers for applications that don't settle.

Strange though that they had a pre-approval. Usually at that point it's just down to the lenders approval of the security property. Perhaps the valuation came back below what they're paying for it, or the property is outside of the lenders policies?

Thanks guys,

As it was an OTP purchase, the purchaser didn't feel comfortable with having to apply for finance again in 12 months time. We decided to tear up the contract. On the other hand, he may be buying a unit from me that is currently under construction