All Topics / Help Needed! / I’m about to lose $20,000 – all advice appreciated

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  • Profile photo of slallenslallen
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    @slallen
    Join Date: 2008
    Post Count: 18

    Has anyone else ever had to rescind on a contract? What was the outcome for you? Does anyone have any other ideas on what I could possibly do to avoid losing my $20,000?

    I’m a 27yr old female property investor and have been investing in property for over five years. I've bought and sold 4 properties and currently hold 3; a 3 bedroom home in Dunlop ACT, a 2 bedroom unit in Moruya NSW and a 3 bedroom new home in Bonner ACT.  

    Last year I exchanged contracts on a block of land in Bonner ACT in order to build another home on, the plan was then to either rent the property or sell for a profit depending on the market situation at the time.
     The land was being sold through the Land Development Agency – a government organisation in the ACT. After getting pre-approval for the loan to buy the land I used a long term deposit bond to exchange and sat back waiting for the LDA to release the title of the block. 

    After 12 months the crown title was released and I was given 42 days to settle on the block. As soon as I was notified of this I went straight to my broker and submitted a full loan application after being re-assured by him that finance would not be an issue.
     Having applied for finance many times before I was aware of the lengthy delays in processing applications and to speed up the processing time I was fully prepared with all documentation. I was hoping to re-finance my Dunlop and Moruya property to utilise enough equity to finance the block. Unfortunately after valuations my LVR was sitting at 83%. My mortgage broker advised me that even though it was LMI territory I should still have no problems getting finance. 

    Lesson # 1: Never take a mortgage broker’s opinion as gospel 

    After 8 weeks of submitting further documentation to satisfy the MI’s of serviceability and an extension from the LDA of 2 weeks to settle I was knocked back on the basis that I was two days late making a mortgage repayment on my Dunlop property. I went on to explain it was due to a change over in tenants and the repayment was still made, but this was not satisfactory according to the MI’s. 

    I immediately sought cash from everywhere to avoid refinancing and simply put down a cash 20% deposit. I managed to do so by borrowing $5k from my mother, getting my annual leave paid out at work, re-drawing on the other mortgages and essentially for-going paying all other expenses. The purchase price of the land was $188,000 and in 2 weeks I had pulled together the deposit…I patted myself on the back for that.
     I had successfully received a further 2 week extension on the settlement date from the LDA – however in penalties and legal fees thus far I had incurred an additional $2,100.  

    I sought finance direct from the bank this time, the personal lender was puzzled at why I had been knocked back for finance as the worst case scenario she ran through her calculators all returned a pre-approval. In 5 days I received conditional approval and was re-assured unconditional approval couldn’t be far off. However, the day before settlement date I got nervous and contacted the lender, only to find the application had been rejected for the same reason as before ‘account conduct.’
     

    I am now faced with the loss of my 10% deposit as well as legal fees and interest – which I have of course, but after fighting for so long to scrape it all together I am just devastated at the thought of giving it away.
     I have asked the LDA for the third time for an extension to on-sell the property. I have a buyer lined up and am only asking the same price I would be required to pay – hence not making any sort of personal profit. I have not received an answer yet, but given my previous experience with the LDA for my first Bonner purchase, I highly doubt any mercy on their behalf. 

    Profile photo of hleunghleung
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    @hleung
    Join Date: 2007
    Post Count: 141

    I thought that all contracts these days had finance clauses.  If you can't get the finance, you should be able to get most of your deposit back.

    You mention that you got pre-approval which shouldn't make the contract binding.

    Profile photo of slallenslallen
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    @slallen
    Join Date: 2008
    Post Count: 18

    I don't believe so hleung – you can submit an offer on a property 'subject to finance approval' but once you have exchanged that condition is not part of the contract…

    Thanks though

    Profile photo of js2js2
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    @js2
    Join Date: 2003
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    You don't mention if you have any equity in other properties? Why does one bank from the next know that it's account conduct.

    You need more cash or more security to offer a bank or some other lender perhaps door knock private solicitors or search private solicitors in google to borrow from but will be higher interest rates. Have you sold your car and furniture yet? Can you apply for a credit card (i wouldn't do this myself but maybe you could).

    Subject to finance clause seems strange that is what a subject to finance clause is there for.

     

    Profile photo of hleunghleung
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    @hleung
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    I still can't understand why you couldn't  get out of the contract through the finance clause.  You mentioned earlier that the exchanging of contracts forced you to go ahead with the contract – not sure what you mean.

    Profile photo of ducksterduckster
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    @duckster
    Join Date: 2004
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    You may be able to get the loan from a non-bank lender that doesn't use Mortgage insurers !!
    it may cost more for the interest rate but you can always refinance when LVR is better.
    http://www.myrate.com.au/loan_products/our_loans
    http://www.pepperhomeloans.com.au/borrower_overview.asp
    http://www.mortgage.net.au/category/home-loans/
    Some of these lenders lend also to bad conduct mortgage holders as well

    another option usually not recommended is to cross secure more than one property with the new property.
    So LVR was at 83%
    With a cross secured laon bank may go to a total loan to Value ratio of 95%
    across several properties and still be acceptable.As a loc loan is 80% LVR but a cross secured might be 95% LVR
    It is risky as you can lose more than one property if you can't pay the loans or get behind but it might get you out of your problem.

    Profile photo of TerrywTerryw
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    @terryw
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    hleung wrote:
    I still can't understand why you couldn't  get out of the contract through the finance clause.  You mentioned earlier that the exchanging of contracts forced you to go ahead with the contract – not sure what you mean.

    If it was subject to finance then she could get out of the contract, but it seems this was an off the plan type purchase. Long settlement. In that case no vendor is going to take the risk of a purchaser pulling out at the last min so they wouldn be unlikely to accept a finance clause, or if they do limiting it for a few weeks.

    If you exchange contracts without conditions then you are locked in. If you cannot complete then you will likely lose the 10% deposit and be up for costs of the vendor – legals, advertising maybe and any short fall on the new sale – but often they just take the deposit and forget about the rest.

    Terryw | Structuring Lawyers / Loan Structuring Pty Ltd
    http://propertytaxbook.com.au/
    Email Me

    Lawyer, Mortgage Broker and Tax Advisor (Aust wide) http://propertytaxbook.com.au/

    Profile photo of TerrywTerryw
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    @terryw
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    slallen, you may be able to find a private type lender at around 70% LVR – high rates and costs though.

    Terryw | Structuring Lawyers / Loan Structuring Pty Ltd
    http://propertytaxbook.com.au/
    Email Me

    Lawyer, Mortgage Broker and Tax Advisor (Aust wide) http://propertytaxbook.com.au/

    Profile photo of BankerBanker
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    @banker
    Join Date: 2010
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    Slallen – can you tell us which two lenders you used?

    I approved a deal within 12 minutes recently – major bank.

    Profile photo of god_of_moneygod_of_money
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    @god_of_money
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    Terry

    Is that true that in NSW, you CANNOT use financial clause in the contract?
    The buyer can only use the cooling off period to organise the finance and building/pest inspection etc

    Profile photo of v8ghiav8ghia
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    @v8ghia
    Join Date: 2005
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    You need to quick smart get a decent broker that has access either to a business banking source from one of the major banks, or someone like some of the credit unions who have someone there that can make a credit decision – not look at the computer screen. Alternatively, if you can keep it 80%lvr or under I cannot see why you would have difficulty based on the information supplied – other than the rush. Firstly see if you can get an extension – then check out the other area  If no joy, door knock lenders in the catagory I mentioned first – and talk with them to get their thoughts before they do a credit check. Please keep us posted. There may be others on the forum closer to you that could help. All the best.    

    Profile photo of TerrywTerryw
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    @terryw
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    god_of_money wrote:
    Terry

    Is that true that in NSW, you CANNOT use financial clause in the contract?
    The buyer can only use the cooling off period to organise the finance and building/pest inspection etc

    Hi GOM

    You can put in a finance clause under as a special condition.

    Terryw | Structuring Lawyers / Loan Structuring Pty Ltd
    http://propertytaxbook.com.au/
    Email Me

    Lawyer, Mortgage Broker and Tax Advisor (Aust wide) http://propertytaxbook.com.au/

    Profile photo of god_of_moneygod_of_money
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    @god_of_money
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    Terry
    Would it be better to get the finance organise during the coooling off period?

    Profile photo of TerrywTerryw
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    @terryw
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    would be better to get the finance done before exchange I think

    Terryw | Structuring Lawyers / Loan Structuring Pty Ltd
    http://propertytaxbook.com.au/
    Email Me

    Lawyer, Mortgage Broker and Tax Advisor (Aust wide) http://propertytaxbook.com.au/

    Profile photo of keikokeiko
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    @keiko
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    Jaffasoft wrote:
    You don't mention if you have any equity in other properties? Why does one bank from the next know that it's account conduct.

    You need more cash or more security to offer a bank or some other lender perhaps door knock private solicitors or search private solicitors in google to borrow from but will be higher interest rates. Have you sold your car and furniture yet? Can you apply for a credit card (i wouldn't do this myself but maybe you could).

    Subject to finance clause seems strange that is what a subject to finance clause is there for.

     

    Jaffa, you say approach solicitors for finance, would you know the interest rates  they charge? and are they loaning out there clients money?
    Thanks

    Profile photo of hleunghleung
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    @hleung
    Join Date: 2007
    Post Count: 141
    Terryw wrote:
    If it was subject to finance then she could get out of the contract, but it seems this was an off the plan type purchase. Long settlement. In that case no vendor is going to take the risk of a purchaser pulling out at the last min so they wouldn be unlikely to accept a finance clause, or if they do limiting it for a few weeks.
    [/quote ]

    Good point, although I've never recently come across a contract that does not have a finance clause.  I took out a contract about 2 years ago with long term (ie 6 to 7 months) settlement and found that finance clause was standard from the developer.

    Profile photo of js2js2
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    @js2
    Join Date: 2003
    Post Count: 758
    keiko wrote:
    Jaffa, you say approach solicitors for finance, would you know the interest rates  they charge? and are they loaning out there clients money?
    Thanks

    I don't know off individual interest rates for any particular place or person but private lenders will be wanting to make 2.5% or so percent more then the banks i imagine and will be close to two digits. More in this current climate would probably be excessive. Relating to the persons post also they might be able to find a bridging loan until a regular mortgage is taken out later.

    I just bought this up as a search but if you actually speak to people face to face and over office counters to solicitors and smaller businesses in the street etc could get onto quiet smaller places that lend out money and or they might refer you onto someone.

    For example this was the basic's of basic search in google only and i also notices this firm in Melbourne offering mortgages. I searched 'private solicitors lending funds'.

    http://www.equitilend.com.au/index.php?action=page_display&PageID=10
    http://www.vernonsolicitors.com.au/

    Profile photo of keikokeiko
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    @keiko
    Join Date: 2008
    Post Count: 513
    Jaffasoft wrote:
    keiko wrote:
    Jaffa, you say approach solicitors for finance, would you know the interest rates  they charge? and are they loaning out there clients money?
    Thanks

    I don't know off individual interest rates for any particular place or person but private lenders will be wanting to make 2.5% or so percent more then the banks i imagine and will be close to two digits. More in this current climate would probably be excessive. Relating to the persons post also they might be able to find a bridging loan until a regular mortgage is taken out later.

    I just bought this up as a search but if you actually speak to people face to face and over office counters to solicitors and smaller businesses in the street etc could get onto quiet smaller places that lend out money and or they might refer you onto someone.

    For example this was the basic's of basic search in google only and i also notices this firm in Melbourne offering mortgages. I searched 'private solicitors lending funds'.

    http://www.equitilend.com.au/index.php?action=page_display&PageID=10
    http://www.vernonsolicitors.com.au/

    Thanks Jaffa, I will look into this.

    Profile photo of traolcoladistraolcoladis
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    @traolcoladis
    Join Date: 2010
    Post Count: 19

    One thing that you could do is possibly play hard ball as well with the banks informing them that you ere assured by their staff that approval would not be a problem. Subject to them telling you this you went ahead and you now stand to lose $20k. Inform them that unless they approve your loan you will be takeing legal action for loss and damages. Put this in writting to them and deliver it directly to a manager. Also inform them that if you do loose the $20K that at the first available opportunity that you will be transfering your existing mortgages to another financial institution and point out to them how much revenue the bank will loose.

    Make it dollars and cents equation to them.

    See if that works. It sounds like you have nothing left to loose at this stage.

    Profile photo of slallenslallen
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    @slallen
    Join Date: 2008
    Post Count: 18

    For further info –

    Notice to complete was issued 6 April with due date 21 April. To date I have not been advised if the LDA's solicitors have granted an extension to enable me to on-sell the property, however I was sure this was a hard and fast rule. Notice to complete is final?
    Are my solicitors negligent here for not advising me?

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