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The peril of accepting a large deposit in concurrent settlements

Discussion in 'Legal Issues' started by Perp, 13th Jul, 2015.

  1. Perp

    Perp Well-Known Member

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    We had a situation where we sold one PPOR and bought another, and managed to arrange for concurrent settlements. The purchaser of our old PPOR had paid a relatively large deposit, I think it was a 10% deposit on a $280K sale - a while back! ;) - so $28K.

    Our problem was that we were buying a new PPOR on the same day, using the proceeds of that sale.

    What's the issue? Well, real estate agents have some period of time - I think it was 42 days from settlement? - in order to finalise your account and release the balance of your deposit. Many of them will "instantly settle" - i.e. release excess funds at settlement - but our real estate agent didn't. So after their ~$5K commission, they had another $23K sitting in their Trust account, that we needed in order to pay the seller of our new PPOR.

    Our lender refused to settle without the $23K, as we'd only borrowed up to $X, not $X+$23K.

    I was in hospital recovering from an emergency C-section and dealing with very premature twins, and this was stress we really didn't need. Somehow - I have no idea how, with how much paperwork is usually required - the lender did pay $X+$23K to the seller of our new PPOR, and sent us a very stern letter telling us we had a $23K overdraft that we'd best attend to ASAP.

    But it astonished me to find that one could find oneself in such a pickle.

    The lesson:

    1) Don't accept a deposit that's more than agent's commission plus a reasonable recompense for if the contract falls over - certainly no more than 5%.

    2) If you do accept a larger deposit, ensure that you have agreement from the real estate agent that they'll settle their trust account concurrent with your property settlement.

    @RPI, @Terry_w - does this happen often? Best way to protect oneself? Is it also an issue in NSW and other states, or is this a QLD anomaly?
     
  2. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    I tell people to never try to settle the same day on 2 properties, especially where you need the funds. I have never had anyone try so never encountered any problems - but I only do about 2 conveyancing transactions per year.
     
  3. Perp

    Perp Well-Known Member

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    Right - but would you have thought you'd have to leave 6 weeks in-between? o_O Having to put all your stuff into storage, stay in a hotel - urgh!
     
  4. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    Not necessarily.

    you could settle on the new one first and then move into it and then settle on the sale of the old one.

    If serviceability is an issue you can use bridging loans which assess you on the end debt.
     
  5. Perp

    Perp Well-Known Member

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    I thought there was no such thing as bridging loans any more. At least, that's what our then-broker told us. He said you'd have to have serviceability to hold both indefinitely, and like many people, we quite possibly didn't have enough serviceability for 2 x PPORs.
     
  6. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    No, they still exist.
     
  7. Paul@PFI

    Paul@PFI Tax Accounting + SMSF Business Member

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    We have avoided that by ensuring all sale deposits are released by the agent asap. Agents like it as they get their fee earlier. They are very obliging. They usually just need the vendor lender approval. If the bank don't need it to service final balance due then they agree quickly. Otherwise assume its part of settlement. I usually organise it with my lawyer but do ask the agent to assist. They are happy so they get their comm.

    After all its my equity. Sure problem can be where the new loan is tight on LVR. In that case its better left there until settlement day. That should be no surprise. Your solicitor / conveyancer should have identified the shortfall.
     
    Last edited: 13th Jul, 2015
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  8. Perp

    Perp Well-Known Member

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    I got the impression my solicitor just assumed the real estate agent would turn up with cash, and then went "well, whaddya know, they didn't!" and told me it was my fault for not including a clause requiring "instant settlement". (I thought "perhaps as you'd been my conveyancer for about a dozen transactions, perhaps you might've anticipated and thought to tell me that!")
     
  9. CU@THETOP

    CU@THETOP Well-Known Member

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    I come across this occasionally. I ring the agent holding the deposit and tell them they need to produce the excess (you will need the buyer to agree to this though) otherwise the deal will crash and the (seller) client will not be moving out (hence no vacant possession) without the cheque to be utilized for the new buy.
    You are best to have the lawyer draw up the proper term on both contracts though..
     
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  10. pinkboy

    pinkboy Well-Known Member Premium Member

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    Rolf pulled off a 4 property simultaneous settlement (one outgoing lender to 4 new lenders) for me 2 years ago.

    I think he's just recovered now.

    pinkboy
     
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  11. Pistonbroke

    Pistonbroke Well-Known Member

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    Wherever possible nominate the solicitor as the deposit holder NOT the agent that way the solicitor handling the settlement does not need to issue instructions to the agent to release the deposit.
     
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  12. Paul@PFI

    Paul@PFI Tax Accounting + SMSF Business Member

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    Solicitor works if deposit must be held. Not if cash is needed.
     
  13. Fernfurn

    Fernfurn Active Member

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    In Victoria, lodge a Section 27 immediately for deposit release which has to be signed by the seller, but it will still take 28 days