Hi,
I have purchased a property for $1,000,000 on a licence agreement and put a purchasers caveat on the property.
It has come to our attention the the vendors owe $800K on the mortgage and have borrowed an additional $650k as a business overdraft secured against the property effectively owing $1,450,000 on the property. During this period their company has been placed in to receivership.
I applied for finance with the bank that currently holds the vendors loan… I was told that my loan was "red flagged" and that I was approved for the amount that I applied for but I was declined on that property! ???
I have since applied for finance with another bank and my loan has been approved.
Will the vendors bank stop settlement?
What is the chance that their bank will write off $450k?
Thank you for your help.
Freddie
The vendors won't stop settlement, but their lenders will if they have used the property as security with a mortgage.
A mortgage lodged before a caveat usually takes priority.
Is the property owned b the company?
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
Hi terry,
Thank you for your reply.
This is what I know…
They have a $650k business overdraft secured against the property.
The business is in receivership. The property is owned in private names but the vendors guaranteed the loan? Hopefully that makes sense.
They have a $800k home loan and a $650k business overdraft secured against the property.
The property was valued by the bank in 2010 at $1,700,000.
Doesn't sound good.
The bank will call in the guarantee for the business – if they actually owe money, it could be undrawn (unlikely!)
If the business failed then they are likely to be in trouble. Even if the are not pursued for company debts they will be for this loan. They are probably unlikely to have the cash to pay for it. Depending on their financial situation they may default on the loan for the property too. If they have other assets they may use these to stay afloat or pay out the overdraft.
If not then the bank will likely sell the house to recover their debts. You could be first in line to buy but the bank will want the full amount owed to them plus costs.
The bank's claim on the house will take priority over your claim I am afraid.
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
That doesn't sound promising.
I'm having sleepless nights because of this situation.
They have definitely used the $650k for trading stock that probably funded their extravagant lifestyle.
We signed a licence agreement to take possession of the property prior to settlement as we had a couple of properties that were sold with long settlements. We are currently living in a property that we don't own and I am effectively paying their mortgage as per the licence agreement. I have 2 young children and my wife is 7 months pregnant and if the bank doesn't come to the party we could be told to leave the property I assume?
What do I do under these circumstances?
Sorry Freddie. Don't think you can do much. Probably best to seek legal advice, and take it from there.
Maybe best to stop paying the vendor now. Write to them and ask them to provide a pay out figure and ask them how much is owing secured on the property – not that they will tell you the truth.
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
And, did you seek legal advice before you entered this agreement?
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
How much cash did you give them up front?
Not being from your country,
So I am just throwing darts here, However it seems to me the Seller has some real liability to you on a personal level,
IN the States this would be fraud not to disclose such a major contractual issue.
However for 200 dollars you could have a title co pull title and have found out about this secondary lien in 24 hours.
I hope you put no cash up front and your only out the monthly payments as at least you got the benefit of use of the property.
If you put a chunk of cash down then this is a real bad scenario.
If the property was worth 1.7 in 2010 and they were selling it to you for 1.0 maybe it was too good to be true.. As I did not think your market devalued to the same extent we did in the states.. Were this value compression was common and even worse in many areas.
Hi again,
Thank you for the replies. I really appreciate it.
I paid a 10% deposit ($100k) on the purchase as per the real estate agents instructions.
I had independent legal advice prior to the purchase but unfortunately I now understand that you you can only find out what a vendor owes on a property a week or so prior to settlement.
Our solicitor spoke to the vendors conveyancer today and was told that they are trying to negotiate a payout for settlement on behalf of the vendor.
I have a feeling this is going to end in tears.
Did the lawyer explain about priorities and that your interest would be secondary to any mortgage? You might have a claim against the lawyer – don't worry this is what they are insured for.
I assume both mortgages were in place before you placed your caveat? (otherwise they probably couldn't have mortgaged). Di you lodge a caveat immediately on exchange of contracts?
When you say you have a licence agreement – what does this cover and did you also have a contract of sale for the land?
What state is the property?
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
Hi terry,
The property is located in Essendon, Victoria
Both mortgages were in place prior to us placing a purchasers caveat.
The licence agreement was basically an agreement that we could move in to the property prior to settlement.
We do have a contract of sale and I paid a $100k deposit on the property that I assume is sitting in trust.
I think you should find out where that money is located asap. Who did you pay it to and what does the contract say about the deposit.
You may be able to terminate the contract, or rescind it, and get back that deposit.. Have a close read of the whole contract and see what you can find.
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
I assume the money is held in trust.
I paid the money to the real estate agent on signing the contract of sale. At the time of signing and putting the licence agreement in to effect, the vendor asked if we could sign a section 27 to release the deposit to the vendors but I declined on legal advice.
I will ask our solicitor in the morning if terminating the contract is an option.
Thank you for your help in regards to this issue.
AGain I have no practical knowledge of affairs in OZ.. This transaction is so wrong on so many levels.
Would a solicitor not check title before having you execute.
In the States a Good Real Estate agent would have prevented this as well. They would have made sure title was clear or what you bargained for before releasing deposits.
Its ironic.. those that bank in the US say our banking system is archaic.. It sounds like your real estate transaction flow is a little the same. In the states you would know in 1 to 2 hours what is owed on a house.. And if you did not have a title co do it for you for free. You can go to county records and pull it up on the Microfiche machine in a matter of mintues.
Sounds like this is going to work out, Like the other poster said go get you deposit back.. And count yourself lucky. I know moving is a hassle but it sounds like this is a bad deal. Unless of course the lender is going to take a 450k short sale which in OZ from what I hear is probably not likely.
Thanks for sharing got to watch out world wide.
Interesting that its a sale through a real estate agent, yet is at a value about 40% down from a valuation 2 years. Essendon is at the higher end of the scale, and though the top end of the market has fallen away somewhat, prices in Essendon have not dropped that dramatically.
Cheers,
Tom
It is interesting because agents doesn't usually get paid their commission until settlement.
Freddie, how did you find this property and was it marketed this way from the start?
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
Hi Freddie,
Could you post an update ?
Thanks.
Hi Freddie,
I realise you may be busy with the legalities of this issue, but reading through this thread it is an interesting dilemma and I am with Dubstep and would love to know how you progressing when you have time to post an update.
Regards
David
Update please Freddie
I like to read more about this and I certainly like http://www.terryw.com.au/
The advise is just fornominal.
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