Vendor requesting subject to finance clause for himself?

[allegria]

Hi,
I'm in the middle of negotiations for a property that is being sold by a divorcing couple. It's been on the market for a few months now, I first put in an offer on the 5th November and I think we have now come to a verbal agreement on price (the wife was holding out for more money). However the agent called yesterday to say that they still have a big loan on the property and the husband would like to add in a clause along the lines of "subject to him getting finance approval within 7 days".

I think it's lose lose for me - I'm in limbo land for that 7 days, as I don't want to get a building/pest inspection done and start ordering council searches if they can pull out of the contract with no penalty.

Has anyone experienced this situation before? I have tried to search but most results are about vendor finance. The vendors have had plenty of time to sort out their finance, it seems a bit odd.

Should i say to the agent "no, I'll withdraw my offer; they have my details and final price and can approach me with an offer when they have sorted out finance". That way I can keep looking and have this as a backup.

Any input welcome!

 

[buzzlightyear]

Somewhat confused. Are you saying the vendors, who are looking at purchasing another property, are waiting for finance approval for that purchase to go unconditional?

 

[allegria]

The agent didn't mention either of the couple was buying another property (this is their investment property). The impression i got was he might still be in debt after the sale of the house and needs to find out if he can get finance

 

[thepeoplesagent]

Ok, so basically you are being asked to sign a contract with this condition?

That is a very rare condition. Personally I have never come across it. Talk about having your cake and eating too! It would be like if a buyer asked for a condition to have their .25% deposit refunded if their finance fell through. I’m calling shenanigans!

I guess you can fight fire with fire and add your own clause which refunds your solicitor costs/pest & building. I believe under the current circumstance, that is very fair. Whether the vendor accepts it is another story.

And your right, you would think the vendor would sort this kind of thing out prior to selling. After all, it’s a divorce, they have to sell eventually. What happens if the vendor can’t acquire finance? Will they not sell? Doubtful…

 

[thepeoplesagent]

The agent didn't mention either of the couple was buying another property (this is their investment property). The impression i got was he might still be in debt after the sale of the house and needs to find out if he can get finance

Ahh. Ok. This is a common situation. For example, someone owes $450,000 on their home yet it’s only worth $400,000.

It’s not really a “condition”. I think this has been explained the wrong way. The vendor could be tickled pink with your offer and more than willing to accept. It is the bank who will have the last say.

The bank will more than likely conduct a valuation on the property before they settle. They do this whenever there is a short-fall on the mortgage. Basically, the bank wants to make sure the home is being sold at a “fair” price.

So, you could sign a “standard” contract. But if the valuation comes in higher than the purchase price, you will not be able to settle.

I have this situation all the time. I have also never had any problems to date. The bank has always come to the party so to speak. They would prefer to sell it and chase the owner for the balance then go to a mortgagee in possession.

Unless you’re paying $100,000 under the homes market value, you should be fine. Still, silly condition to put in the contract.

 

[Peter_Tersteeg]

I wonder if you could countersign it with the future date at which his finance due. That way all your clocks (finance, building & pest) start ticking after he's ready to go unconditional. It might not work but it's worth asking your solicitor about.

I'm also wondering if he's trying to finance the property so he can keep it; the sale might not go through?

Or they're in a negative equity situation and he'll need a personal loan to cover the shortfall.

You probably need to ask them exactly what's going on before you sign anything.

 

[mattnz]

Yes, the common term for this is a short-sale.

Similar situations can also occur where properties are cross-collateralised and they wouldn't qualify to retain financing with the bank, following the sale of this property as either the valuations, or their current income wouldn't stack up with the bank.

In a situation where this could be an issue, it is perfectly reasonable for the vendor to have a clause in the contract to reflect this uncertainty and ensure that they don't end up being in breach of the contract.

I think it is a good thing that they are being up-front with you about their circumstances and that the bank could say no.

 

[Spades]

Hi,
Should i say to the agent "no, I'll withdraw my offer; they have my details and final price and can approach me with an offer when they have sorted out finance". That way I can keep looking and have this as a backup.

Any input welcome!

Yes say to the agent "no, I'll withdraw my offer; they have my details and final price and can approach me with an offer when they have sorted out finance".

I'd add "BUT bear in mind,i am looking at other properties and or have placed a few offers on other properties and again,while he's sorting out his finance,i may have committed elsewhere".

Something to that affect,
Cheers Spades.

 

[mattnz]

fyi, in USA where this is very common (millions of short sales a year there), the banks can be very slow in reaching a decision. Not sure if this is also an issue in Australia, but given my recent experiences with 3 different major banks, it wouldn't surprise me if it took ages.

 

[Terry_w]

There is no real point in giving the vendor an out clause. Let them get this sorted before they sign.

Watch out for caveats now and after exchange. If you do exchange lodge a caveat asap as these things get nasty.

And use a lawyer, rather than conveyancer.

 

[thepeoplesagent]

The states have a very different procedure then us. In America you can walk away from your mortgage and give the home to the bank. In Australia, the bank or mortgage insurer will chase you for the balance + whatever penalty rates apply.

As I said, this is a common occurrence and typically, does not make any difference to the settlement time.

I list loads of mortgagee properties and the contracts always have caveats. They are easily removed prior to settlement.