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Long settlement & finance approval

Discussion in 'Property Finance' started by joel, 15th Nov, 2015.

  1. joel

    joel Well-Known Member

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    A hypothetical q for the brokers - say the vendor requests a 90 day settlement. If finance is approved in the first 14 days, is that then set in stone until settlement day? Or can the lender retract their offer of finance if the purchaser's circumstances change? Thanks
     
  2. Xenia

    Xenia Adelaide Property Manager Business Member

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    Once the conditions of the contract are met it's pretty much set in stone despite length of settlement or changing conditions.

    If the finance conditions are met with in the first 14 days which is usual for a purchase contract then the contract becomes unconditional and you need to carry on with settlement.
     
  3. Xenia

    Xenia Adelaide Property Manager Business Member

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    The settlement date can be renegotiated at any time once the conditions are met.

    Hoping all that makes sense.
     
  4. joel

    joel Well-Known Member

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    So if you're earning $1000 pw and get finance, then 2 months later, still prior to settlement, you're earning $300 pw which normally wouldn't service the loan, what happens?
     
  5. Rolf Latham

    Rolf Latham Inciteful (sic) Staff Member Business Plus Member

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    Lenders will generally honour formal approvals unless you notify of them change.

    If you do notify of the change , under the NCCP rules, they must re assess the loan, and in your example, they would not settle.

    Moral and ethical hazard.

    if they know of the change and settle, and the loan goes bad, its highly likely they wont be able to get judgement because the loan was "unsuitable".

    if they witjdraw the approval they are seen as being ethically in the wrong place

    Solution.

    choose and move and take the risk, OR dont borrow when one knows such changes are likely

    ta

    rolf
     
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  6. Redom

    Redom Mortgage Broker Business Member

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    Lenders will honour the unconditional approval on 90 day settlement terms - you may need to do a valuation again if it goes past 90 days, generally no more further credit checks beyond that.

    Don't do it intentionally though - not worth it.

    Cheers,
    Redom
     
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  7. joel

    joel Well-Known Member

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    Would a finance clause cover this risk?
     
  8. D.T.

    D.T. Adelaide Property Manager Business Member

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    It would allow you to exit the contract in say 14 days that the clause allows for. Once that's passed you're 'unconditional'.

    The bank isn't going to check again after that unless they're advised to. Its morally wrong though ;)
     
  9. Xenia

    Xenia Adelaide Property Manager Business Member

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    If there is a change in your circumstances within the first 14 days of your finance clause (before the conditions are met) then yes you can reassess and the contract falls over on finance not approved.

    after the 14 days, if you had provided documents to the real estate agent and vendor that you have finance the contract will go unconditional.

    If there is a change of circumstances after the contract has gone unconditional and you bring it to the bank's attention and you can't get the loan - they change their mind, the agent and vendor will hold you accountable to go through with the purchase and you can be sued for damages.

    Ensure everything is done withing the time limit of the finance clause.
     
  10. joel

    joel Well-Known Member

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    Cool, thanks. I had always wondered about that
     
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  11. tobe

    tobe Well-Known Member

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    Just to confuse matters slightly there are a couple of lenders who do random audits after (and before) finance approval who if they discovered such a situation would usually result in the loan offer being withdrawn. The audits are about checking the banks processes and fraud rather than anything else but situations such as that described would also be caught.
     
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  12. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    I have had one where a written full approval was granted, I told the client, and then the assessor reissued the full approval the next day with a lower amount. Neither I nor the client was happy, but our arguments fell on death ears. I was nearly going to go legal on them, but the client gave in and accepted it.
     
  13. Jamie Moore

    Jamie Moore MORTGAGE BROKER - AUSTRALIA WIDE Business Member

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    Should be sweet - 90 day settlement periods are quite common.

    Cheers

    Jamie
     
  14. joel

    joel Well-Known Member

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    What if it's longer than 90 days?
     
  15. Jamie Moore

    Jamie Moore MORTGAGE BROKER - AUSTRALIA WIDE Business Member

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    It's fine with some lenders - check with your banker/broker how long the loan offer/valuation will be valid for.

    Cheers

    Jamie