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I'm selling my house privately i have a conveyancer the

Customer Question
I'm selling my house...

I'm selling my house privately i have a conveyancer the buyer and myseif have signed the contract unfortunately the buyer is subject to contract the contract was signed on 5th of tis month march i signed a section 27 3 to 4 weeks ago they have till 16 th of march to see if the loan has been accepted what happens if they have not finalised

Lawyer's Assistant: What steps have you taken so far? Have you prepared or filed any paperwork?

Yes contracts are all signed thehave till 5pm tomorrow where do i stand

Lawyer's Assistant: Where is the house located?

8 suffolk place campbellfield melb

Lawyer's Assistant: Anything else you want the lawyer to know before I connect you?

Yes the buyer is subject to finance i signed a section 27 3 to 4 weeks ago

Submitted: 4 months ago.Category: Australia Law
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Answered in 5 minutes by:
3/15/2018
Solicitor: John Melis, Lawyer replied 4 months ago
John Melis
John Melis, Lawyer
Category: Australia Law
Satisfied Customers: 3,326
Experience: Principal Lawyer at Legal AU Pty Ltd
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Hi, my name is***** solicitor in Melbourne. Thank you for using Just Answer, and I will answer your question today, and ask various questions to narrow the issues in your post raised.

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Solicitor: John Melis, Lawyer replied 4 months ago

if the contract is worded correctly with subject to finance, then you will be able to enforce the contract, if not, the purchaser, will be able to cancel the contract and get the deposit back

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Solicitor: John Melis, Lawyer replied 4 months ago

Purchasing property by changing the contract so it is ‘subject to finance’ sounds simple. The words are written in the contract and initialed. However, the important element on the use of the term ‘subject to finance’ is what does it actually mean, and what is the legal obligation on the purchaser.

As financial institutions change their practice of lending to be inline with the dynamic economy, obtaining

finance becomes more challenging, and the use of the term ‘subject to finance’ is more important both for the purchaser and vendor, especially when the purchaser is trying to withdraw from the contract when finance cannot be obtained.

Where the ‘subject to finance’ clause is broad, meaning not being specific in requirement, and the purchaser has not been able to obtain finance, and seeks to rescind the contract on that basis of the broad term used, the vendor can raise an objection to the recision on the ground that the purchaser has not attempted all reasonable efforts in attempting to secure finance.

If the ‘subject to finance’ clause is narrow in meaning, and finance cannot be obtained, and reasonable efforts have been made by the purchaser with evidence to support the same, the vendor will not be able to refuse rescission of the contract by the purchaser.

When the property market is in a growth phase, and lenders are flexible with lending policies, the concerns about using the term ‘subject to finance’ does not really impact on the purchaser’s mind regarding the negative consequence if finance could not be obtained. However, when lending policies are tightened, stringent assessment of loans occur, which does impact on the issue of ‘subject to finance’ in a contract of sale.

A purchaser that is planning to make a contract ‘subject to finance’ should have this additional clause professionally drafted by a lawyer before the contract is signed. This is because the ‘subject to finance’ clause needs to be specific to the condition that is required by the purchaser, and not just being a time period to obtain finance.

A vendor that is presented with the requirement from a purchaser that the clause be subject to finance, the vendor should seek advice from a lawyer to determine if the clause that is presented by the purchaser is narrow and restrictive, or broad. Where the clause is restrictive in meaning, the vendor needs to consider whether the purchaser will be able to easily rescind the contract, especially when the price of the property is in the millions. Where the clause is broad, and the purchaser wants to rescind the contract, the vendor needs to consider whether the attempts by the purchaser to obtain finance were reasonable on the circumstance with respect to the supporting evidence provided by the purchaser.

The importance of the ‘subject to finance’ clause is easily overlooked by both vendor and purchaser to property transactions when an additional clause is included in the contract. There are numerous risk issues that surround the ‘subject to finance’ position for both the vendor and purchaser, and caution is always warranted.

In addition to the risk the purchaser has with the ‘subject to finance’ clause with the vendor, the purchaser also has to consider the risk with the lender, whether the loan has ‘unconditional approval’, or the loan is ‘subject to’, or the loan is ‘approved in principle’. There are many terms that may be used to indicate that finance has been granted when in fact it is not ‘unconditionally approved’. The other important fact to ensure is the accuracy of the written communication from the lender of the approved finance.

It is common that a lender will make it clear that approval of the funds must await an official written confirmation. This means the borrower usually receives two lots of correspondence from the lender, and careful review of the contents of the document or email needs to occur to determine what is the meaning that is being expressed by the lender. The borrower needs to act with caution, as there has been numerous occasions where purchasers have acted upon indications of approval of finance by a lender, when finance has not been approved unconditionally.

In Box v Midland Bank Ltd [1976] a bank manager informed a borrower that if certain conditions were met, then ‘the provisions of the necessary finance by the bank would be a mere formality’. The borrower acted on the lenders comments and signed contracts. The lender then refused to issue the funds as the regional office had not approved the loan. As a result the borrower was made bankrupt. The borrower brought proceedings against the lender and the court held the lender failed to act with reasonable care.

In Adour Holdings Pty Ltd (in liq) v Commonwealth Bank of Australia (1991) the borrower requested a loan for $1.45 million for the purchase of land for a subdivision that would cost $5.4 million. The borrower completed the required application by the lender. The initial loan of $1.45 million was approved and communicated to the borrower. The lender encouraged the borrower to proceed with the project. However, the lender failed to explain to the borrower that the loan was subject to satisfactory valuation, market analysis and feasibility studies, which the study was for the entire development. The loan was eventually rejected by the lender. The borrower brought proceedings against the lender and the court held that the lender had acted with misleading and deceptive conduct to the borrower.

In Pace v Westpac Banking Corporation [2001] the borrower sought a loan for a subdivisional development. The lender gave approval in principal and above the personal banker’s authorised lending limit. The lender had extended some funds without formal approval. The borrower on the basis of the lender’s approval in principal and partially extended funds, signed contracts and settled the land. The lender did not extend any further funds. The borrower commenced proceedings against the lender and the court held the lender liable for negligent misstatement and misleading or deceptive conduct.

Lending practices overtime have become more stringent with approval requirements. However, the purchaser of property should act with caution when loans are explained that they are ‘approved in principle’ and that actual approval may be subject to certain conditions which may not be able to be met by the purchaser. Lenders are in the business of lending money, and the purchaser, whether using a broker or lender need to act with caution with communication to ensure that what is being offered is ‘unconditional approval’.

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