In this edition of Worst Case Scenario, we take a look at what happens if you can’t get finance. This situation happened earlier in the year when a client received notice that their off the plan property was ready to settle.
WHAT CAN WE LEARN FROM THIS WORST CASE SCENARIO?
- Recognise changes in the property market that might change the new valuation of your property.
- Recognise changes in your personal circumstances that might impact your finance.
- Work with your mortgage professional to secure alternate sources of funding and valuation.
- Keep track of your finances during the settlement period.
Let’s take a detailed look at what happened and how we can learn from it.
TELL ME WHAT HAPPENED
In 2016 a first home buyer purchased an off the plan apartment in inner city Melbourne. They put down a $75,000 deposit which represented 10% of the purchase price. The development was a medium-large scale site with about 30 apartments across 5 levels. The vendor’s representative provided updates on the progress of construction.
With the Plan of Subdivision due to be registered in a couple of weeks, the purchaser contacted their mortgage professional who re-applied for finance on her behalf. She was offered a mortgage $70,000 less than she needed to settle the property.
WHY WAS THERE A DIFFERENCE BETWEEN THE TWO OFFERS
There was a difference between the two finance offers for two reasons. One, the value of the property had slightly lowered during the construction period and two, the earning capacity of the borrower had changed in the two years.
We cover this issue with a mortgage professional in our video series which you can watch here.
WHAT HAPPENED FROM A LEGAL PERSPECTIVE
Big developers are very difficult to talk to directly. This is simply because they are settling hundreds of properties a year and as a result they don’t have time to deal with them on an individual basis. This makes it almost impossible to appeal to them personally. The Vendor’s lawyers are also dealing with hundreds of settlements a year and can’t be lenient with one of them to the exclusion of another so they apply the general rule of being lenient to none of them.
CAN YOU GET INTO TROUBLE FOR NOT SETTLING YOUR PROPERTY
There was one email which really shook the purchaser to the core. The Vendor’s solicitor mentioned that there was a chance that bankruptcy action would be taken against them. In hindsight this was included in a generic paragraph and we don’t believe that the Vendor had any intention of going down this path. It’s simply not a good look.
The Vendor already has the full deposit which would offset any costs they would incur in selling the property again…and then of course they are able to sell the property on the market for it’s full value. So whilst we must always assess these matters on a case by case basis, we haven’t heard of a situation where a vendor has continued to pursue the purchaser AFTER they have taken the deposit. That is damage enough.
