Disaster between exchange of contracts and completion


W

whitely525

What happens if you are afflicted by a diasaster (loss of job,
accident etc.) between exchanging contracts on a property and legal
completion..? For some off-plan properties this time can be quite
long (e.g. > 1year).

Does the mortgage Co release the funds for completion... and then
reposses..? Or do you lose your desposit and risk getting sued for
the remainder..?
 
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R

Ronald Raygun

What happens if you are afflicted by a diasaster (loss of job,
accident etc.) between exchanging contracts on a property and legal
completion..? For some off-plan properties this time can be quite
long (e.g. > 1year).

Does the mortgage Co release the funds for completion... and then
reposses..? Or do you lose your desposit and risk getting sued for
the remainder..?
You complete the purchase and immediately put it on the market,
selling it on at a whopping profit.

Don't you have disaster insurance?
 
A

Alex Heney

What happens if you are afflicted by a diasaster (loss of job,
accident etc.) between exchanging contracts on a property and legal
completion..? For some off-plan properties this time can be quite
long (e.g. > 1year).

Does the mortgage Co release the funds for completion... and then
reposses..? Or do you lose your desposit and risk getting sued for
the remainder..?
The mortgage company would release the funds for completion, assuming
the mortgage had been arranged prior to the "disaster". I expect that
in that case (where the mortgage was being arranged well in advance of
completion), they would have required you to take out insurance
against such disasters occurring prior to completion.

If you have no such insurance, then they will only repossess after you
have missed several payments on the mortgage. Your best bet in that
case would be to put the house on the market straight away, and hope
you can sell it before they repossess.
 
R

R. Mark Clayton

What happens if you are afflicted by a diasaster (loss of job,
accident etc.) between exchanging contracts on a property and legal
completion..? For some off-plan properties this time can be quite
long (e.g. > 1year).

Does the mortgage Co release the funds for completion... and then
reposses..? Or do you lose your desposit and risk getting sued for
the remainder..?
It may be cheaper to renege, especially if the disaster would have a real
consequence on your ability to complete.

You will lose the deposit and possibly get sued for readvertising costs,
abortive legal fees and interest on top. A lot will depend on the sort of
disaster and the vendors attitude to it: -

Traumatic injury - back out look for sympathy and a negotiated solution*.

Loss of job - complete; look for another job, put new house on market or
take lodgers.

Own sale falls through, or old house burns down etc. - complete; go to bank
for bridging loan pending sale / insurance payout..

Divorce / spouse walks out - stall completion of purchase, rush completion
of sale, draw the net proceeds out in 500Eu notes and fly to another country
of your choice ;-)


Remember stamp duty, agents & legal fees etc. will amount to 5-6%.
 
J

John Boyle

Alex Heney said:
I expect that
in that case (where the mortgage was being arranged well in advance of
completion), they would have required you to take out insurance
against such disasters occurring prior to completion.
Do they? I have never heard of a lender having such expectations.
 
W

whitely525

What does the contract say?
Well I thought contracts were usually exchanged unconditionally. I.e.
no ifs or buts.
The answer either lies in the contract,
or if the contract is silent on this, then in the law.
AFAIK the law says you lose your deposit and could be sued for the
remainder.
If you have not yet exchanged contracts, you can always negotiate a
suitable clause. In regimes where it is usual for some time to elapse
between the equivalent of exchanging contracts and possession,
contracts probably spell this out (the standard New Zealand contract
worked up by real estate agents and the Law Society does).

In any event, 'off the plan' contracts should contain clauses covering
the various things that can go haywire.

A more fundamental problem is where the market value at time of
completion exceeds the agreed price. In such circumstances the vendor
may do what he possibly can to wheedle out of the contract.
I think the more fundamental problem is the exact reverse..! I.e.
when market price at completion time is below the agreed price
(because the developer sets the agreed price based on the inflated
anticipated not current market value). If prices fall, not rise, you
face a double-whammy.

Like holding a load of underwater share options, but possibly worse as
you can lose more than your stake.
 
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R

Ronald Raygun

Well I thought contracts were usually exchanged unconditionally. I.e.
no ifs or buts.
On the contrary, a contract *is* a collection of ifs and buts.
AFAIK the law says you lose your deposit and could be sued for the
remainder.
No, the contract says that.
 

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