29 Jan 2016

Settlement Day

A lot of people have to be there on settlement day. You’ve got both sets of bankers, and both sets of lawyers. They’ve all got to be at the one spot at the one time, do all their bits, do their little inputs for the settlement. There are risks here too. What happens if the bank messes up? You’re buying the property, the bank messes up your finance and they say, “Oh sorry. Look, we’re just not ready,” and the seller says, “Well, too bad. You messed up. You weren’t ready. I’m keeping your deposit.” This could happen. Now, you may have a recourse against your bank to say, “Come on! You knew. In all States, time is of the essence. You put me in this position. You previously approved the loan.”

Now, in terms of dealing with the seller, obviously at that time there will be all sorts of pressure because, if they don’t settle they may have other interests to pay, so you’ve got to find some kind of compromise. Can this happen?

Absolutely, it can. You could lose your deposit. With any deal you’re trying to line your ducks up all in a row so that at the end of the day you know you can settle.

Most sellers would agree to another day here, another day there, but they don’t have to. They might charge you interest. They might charge you a penalty of say $3000 or something like that for the extra interest, or they can sue you for the difference if the property’s gone down in value in that contract time.

This can happen in the reverse too. You’ve got the scenario where there’s a rapidly rising market – it’s red hot. Somebody buys the property, exchanges the contracts but hasn’t completed the sale yet. The vendor finds that he can get another $100,000 –$ 200,000 or whatever. So, he sells it to somebody else, even though he’s exchanged. He’s exchanged the second contract, and he refuses to complete the first one. He’s setting himself up for a very difficult fight in court, because the first contract takes precedence over the second. People play these games to test your resolve, to see whether you will go hard on them for your right of purchase. For that sort of gain they may be willing to take the risk on it, especially in a very rapidly rising market. You’ve got to take them to court even though you’ve got all the rights. The first contract has got all the rights, but then it’s the cost of taking them to court, as well as the time factor and the ultimate question of whether you are ever going to get the property or not. Is he going to take the money and gamble it anyway? You still don’t end up with anything even if you win. What you need to do is put a caveat on it if you’re intending to do something about it because caveats just don’t last forever. It’s meant to be a stop action on that property until you can resolve your rights with that property.

We have made an assumption that most of you are looking to get into new property, but some of these points are going to be relevant to you as sellers of properties also. You can be conscious of these because a buyer may potentially play these ‘games’ on you as well.