Split Contract Conundrum

Hey all,

I am in urgent need of help! I am brand new here so unsure whether or not a post like this has already been posted. I recently laid down a deposit for house and land package out in South West Sydney. It's a four bedroom house and land is registered - I've just exchanged contracts after gaining pre-approval for the loan with NAB. Valuation came back stating that mine is a split contract and there is a specific clause stating that I can only build with the current builder. Therefore NAB won't approve my loan!

I could not believe what I was hearing but after some research I realised this is a thing. My settlement date is 12 October and i'm stuck because my broker has never encountered this problem before. She said she has touched based with other peers and they say banks won't touch it because it's split contract. I signed the certificate 66w so no cooling off period and I've already laid down a heavy deposit.

Any ideas on how to mitigate this would be really appreciated!

Many thanks in advance

 

Where's the lawyer acting for you on these transactions? What do they advise?

 

There are many things in your post that do not stack up. Perhaps you could explain more on the points below.

You don't go exchanging contracts un-conditionally, on a pre-approval. You's only do that when a formal approval is forthcoming. Who let you do that? Please tell me it wasn't your conveyancer

That's why you don't go unconditional until formal approval is given.

Purchasers don't sign 66W's - conveyancers and solicitors do.

What's your definition of a "heavy" deposit? Contracts in NSW normally call for a 10% deposit. If you ultimately cannot get a loan to settle, then you stand to lose this deposit and potentially get sued for other costs and/or shortfall in eventual sale to someone else.

1. Get a property lawyer (is your conveyancer even licensed?)
2. Get a mortgage broker who knows what they're doing
3. Get a loan from another lender
in that order. Run, do not walk - go!

 

I engaged a conveyancer not a solicitor. She advised that I try and get the original contract amended (still possible even after exchange).

 

Hi Alan,

So to answer your questions:

1. The property is a house and land package. This means two separate contracts that are linked. I went to NAB to get the pre-approval to ensure that I could afford and service the loan. NAB would not give me formal approval until I had signed contract of sale, preliminary building contract and building plans. But mostly importantly, the bank won't provide formal approval until valuation has been completed. All of these requirements needed a deposit to be laid down before the builder would provide or sign the above documents. Hence, my current conundrum

2. As my property is a single storey construction, the split-contract actually refers to the land being linked or tied to the construction, which has to be with a specific builder. In my instance, the same company who sells the land also does the construction. Banks consider this high risk and my property as being unsuitable security because if in the unlikely event that something happens and the build doesn't get completed, the bank can't resell or hire another builder because of that special clause.

3. I wrote it incorrectly - when I said I signed the 66W I meant the conveyancer did it on my behalf

4. It was a heavy deposit because I laid down 10% for the land and 10% for the build.

I hope this helps clear up any confusion

BTW, I like your plan and have already started looking at other options!!!

 

Hi Rolf,

yes you are correct - the problem with my contract is that because there is a special clause that prohibits me from going with any builder, the valuer sees this property as a split contract. Hence, there was no value assigned to the land or build. So I checked with the builder and asked how can other purchases get their finance under such a loan, and the answer was 'luck'! If the valuer does not pick up the clause then they pass it through as per usual, however if the person has bad luck (such as myself) then it will come out as the current scenario.

I've been doing research and some leads are saying that CBA is willing to approve split contract loans for single construction projects. Anyone here can attest to this with previous experience?

 

Hi Durian,

Did you get this sorted? I am looking for a solution for the same challenge.

 

Hi AGAM, we are in the same boat... did you manage to get the loan?

 

Hi Property_101,

No we have not. We are now looking at changing the contract to "Pay-On Completion" settlement term. What have you tried?

 

Same... Is your developer open to consider this option?

 

I don't know yet, but they will have no choice as well. They are building 14 terraces and some are being knocked back as L & B project by lenders. Lenders consider them too risky and would only settle on completion.

But I think they will eventually as the remaining terraces are now listed as pay on completion settlement terms. So we are hopeful.

 

Hi AGAM,

Sorry for the late reply - things have been hectic at work. Yes, I got my loan approved by NAB. I did this by asking the developer to change the contract and removing the clause the stipulates I have to build with only the builder. Perhaps try negotiating with your builder to do the same?

If the above failed, my last option would have been to apply through CBA - apparently they are more lenient when it comes to split contracts. But really, it all comes down to the valuer and whether or not they will pick up that it's a split contract.

Good luck with it all!

 

Hi durian

We are having sleepless nights we paid 5% on both land and house and now Westpac refused the application based on builder and developer being the same.

Would u mind helping us out with your broker mate ? Plz 0430920087.

Thanks heaps.
Saleem.

 

Hi Any one still facing this situation

 

I had this issue a few years ago. It was just luck as others have explained above. You hope they don’t notice and just put it through.

I made three applications before being accepted by ANZ, for what it is worth.

Find the best broker you can with a ‘never give up’ attitude.