SA subject to finance issue

[James101]

HI, i have entered into a property contract subject to finance.

Finance approval was to be obtained by the 5th of march, on the 4th of march it became apparent that finance would not be approved by this time. I emailed the agent terminating the contract due to not having finance approval. The agent has now stated that unless i have a letter of rejection from the bank then the contract stands.

this is what is written in the contract in regards to this

SC 1.2 The Purchaser will use best endeavours to obtain the loan.
SC 1.3 In the event that the approval is not obtained on or before the latest date for approval and provided the Purchaser has not waived this special condition and communicated such waiver to the Vendor in writing then either party (but, in the case of the Purchaser, provided it has complied with SC1.2) may immediately terminate this Contract by giving notice in writing to the other party.

 

[Tripe]

Have you got proof that your finance has been rejected ?

 

[James101]

No, i was of the opinion if finance was not obtained on or before the last date for approval i had the right to terminate the contract.

 

[Rob Legat - SBPL]

I don’t practise in South Australia, and each state is different when it comes to conveyancing, but there would be strong similarities enough to give you some general overview.

The first part of the condition is that you will use best endeavours to obtain finance. This anticipates that you will make the necessary application for finance in good faith. And, unless you specify a particular lender, you will make enquirers with a reasonable range of lenders - not just one.

I suspect they are asking for a rejection letter to evidence you’ve used reasonable endeavours. If you haven’t made a bona fide attempt to obtain finance then you may not be able to rely on the condition to terminate.

 

[James101]

I have engaged a mortgage broker and an application has been made to a bank. The issue is the finance will not be approved by the last date for loan approval. The vendor has refused to increase settlement, which will leave very little time between loan approval if successful and settlement.

I did speak to a lawyer and he seemed to think i just needed to terminate the contract before the last date of financial approval.

I had every intention of proceeding with the sale if an extension for finance approval and settlement was given.

I had every intention of proceeding with the sale if a two week extension was given for finance approval and settlement. The banks are being very slow in this current climate.

 

[Rob Legat - SBPL]

The banks are being very slow in this current climate.

That's entirely true, and I expect it will only get worse in the wake of the Royal Commission.

You didn't state that you sought an extension for the due date for finance however. Your original post reads as if you immediately terminated. Did you seek an extension? And if not, why not?

 

[James101]

I sought an extension on the finance clause and the settlements clause, The extension to finance was only given after i sent an email terminating the contract, no settlement extension was given.. The extension to finance also had a change of the vendors name which they decided not to mention in are phone call. The Property is owned by a business and not an individual, which i have been told by the conveyancer lawyer and my own lawyer may void the contract?

 

[Rob Legat - SBPL]

The bit about the name is relevant, you should have mentioned that. Is the seller named in the contract the same as the registered owner of the property? If not, and assuming there is no 'transfer by direction' type scenario (I don't know what you'd call it in SA) that contract might be void to begin with.

Regardless, it should be a simple matter to obtain something from your broker to state that you were unable to obtain a satisfactory finance approval by the due date. As for the granting of the extension after your termination, I doubt that will have much of an effect as long as your termination was communicated after the end of the original due date for finance (i.e. they didn't respond before the end of that due date). Finance conditions are commonly held to be for the benefit of the buyer - not the seller; so it is the buyer's right to terminate and the seller runs the risk if the date is not extended by mutual agreement within time.

 

[James101]

They emailed me on the last day of financial approval with an extension, but did not include the request for a settlement extension so i declined. The name on the contract is different to who actually owns the property. A letter from the broker was provided but they are saying that it is not enough. The way i read the contract either party could terminate the contract if finance was not obtained by the approval date.

Provided that the purchaser had made some effort to actually obtain finance, which i have.

 

[Rob Legat - SBPL]

Okay, I think you have a problem. You were given the extension and terminated despite having extra time to obtain finance approval. That could mean you've failed to use your best endeavours and are in breach of the contract.

I'd be working the angle on the seller not being the registered proprietor if I were you.