buyer signing contract but has a clause subject to loan offer

S

snowwhite

Guest
Hi just wondering if this is normal in todays climate or should we be getting worried. I met with my solicitor who informed me that the purchasers solicitor has added a special clause into our contracts to say if our purchaser doesn't get loan offer or i think she mentioned her insurance then she gets her deposit etc.. back. I presume this means nothing as she wont be going ahead unless she gets loan offer. We have seen the loan in principle. Has anyone else experienced this? thanks for your help
 
I'm glad contracts are getting back to this. I wouldn't sign any contract that didn't have this clause in it.

From your prospective you can say no to the clause and risk the buyer not accepting the contract and then you lose the buyer? If they have loan in principal it doesn't mean they will actually get the loan but it looks good. Have a bit of faith in people and think of it from the buyer's perspective as well.
 
It is becoming very common. It does raise the issue though that you cannot plan any transaction or work on completions until virtually the last moment. So, you've no signed contracts ( or at best , conditional contracts) but clients still have to organise house clearance, removal vans and utilities. Clients, while delighted when it does happen, are finding the whole transaction process highly stressful. As, indeed, are the lawyers caught in the middle!

mf
 
But isn't this committing the seller to the contract, but not committing the buyer? The buyer can claim that they did not get loan approval and walk away from the contract.

If I was selling, I would look for the following:

1) If loan approval and purchase not completed within 30 days of closing date, the contract is void and the purchaser gets the deposit refunded less a penalty of €10,000

Brendan
 

Unfortunately, Vendors are so desperate right now ( and purchasers know that) that no purchaser would agree to it.

I hold my breath on (the very few current) transactions until the Bank has actually released funds and both sides know that the money is available. Until that money is physically available, anything disastrous could happen.

It is that grim out there.


mf
 
My recollection (which does go back a good few years as I have been in my present home for many years) is that offers made "subject to loan approval" used to be fairly common. I think setting a time limit, as Brendan suggests, is very reasonable but I suspect that a financial penalty would frighten away a purchaser.
 
As a rule when acting for a vendor I do not accept this in a contract, unless a very limited timeframe is inserted so that the contract comes to an end unless the purchaser gets a loan offer within that timeframe.

Personally, I think a contract of this nature is a waste of time. As someone else said, you are commiting your vendor with no commitment from the purchaser. Given how difficult it is to get a mortgage these days, my view on it is that the purchaser should have the loan offer before signing the contracts. What was the purchaser doing during the bidding process/review of contracts & title process? Why is it taking them so long to get the loan offer? Is there a specific problem? Is an insurance company requirement (e.g. medical) causing a delay? An offer in principle is good but certainly not definitive.

At the very least I would not accept the clause without making enquiries. When does the purchaser expect to have the loan offer? Is there a problem with the application? If I formed the view that the purchaser is messing around, or unrealistic I would be inclined to advise the client not to enter into the contract until the purchaser has the loan offer.

Kate.
 
Surely people should not be bidding on houses if they don't have loan offers already.
Like, you submit your application based on a similar house, so that most of the work is done on the application.
When I nearly bought a house last year my solicitor said she wasn't touching anything till the loan offer came through as there was no point.
Isn't it a big waste of solicitor's time and money to be working on a file and then the thing has to be abandoned because the buyers are refused the money?
At least in the days of solicitor getting a percentage of sale price.
Maybe now solicitors are charging admin fees regardless of the sale going through.
 
sadie said:
Surely people should not be bidding on houses if they don't have loan offers already.
Click to expand...
Afaik, the bank can't make a formal loan offer until price is agreed, valuation completed etc. Therefore just because a buyer has approval in principle doesn't mean they will get a loan for the full amount in the AIP or even a loan at all. Depends on the underwriters risk analysis I guess.

So the best the buyer can do is get AIP and then bid accordingly and hope that the AIP turns into a formal offer.
 

Hi Padraig

We are not discussing offers in this thread. All offers and acceptances have no standing until contracts have been exchanged. In this thread, people are discussing formal contracts signed by both parties.
 
Brendan said:
We are not discussing offers in this thread. All offers and acceptances have no standing until contracts have been exchanged. In this thread, people are discussing formal contracts signed by both parties.
Click to expand...

I understand that, Brendan, having been through the process a few times. I recall contracts being subject to loan approval (I also recall contracts being subject to planning permission, but that's another matter). My experience is from the days when loans were difficult to get; I think we are back to those conditions.

I saw deals fall through when the buyer could not get finance (other people's; I was lucky in all my transactions). It was very frustrating for the seller as well as for the buyer, but people knew that's how things were, and lived with it.
 
The problem is that no purchaser ever has a guaranteed mortgage not until the money is in the bank. Anything can go wrong right up until that point and even at closing something might come up but it's highly unlikely.

Any property I ever bid on I never had loan approval, I applied for it after my offer was accepted only. But I would have had a fair idea that I would get the mortgage approval.

Kate10 what do you advise your clients who are purchasers?

Brendan your clause would be fine if it didn't have a penalty.
 
The problem is exactly as Bronte says, as a buyer's solicitor, the problem is that even if you have a loan offer, there is a real risk that the bank could withdraw it. So you have to try to keep things 'subject to loan' right until you get the loan cheque in your paw. There is no easy solution.
 
I can't agree with Brendan on this.

If the buyer can't get a loan, or if approval is withdrawn, then you aren't going to sell your house. Fact.

And in today's climate banks aren't signing off approval untill ALL the facts are in.

As a result, I can't see how this is massively disadvantageous to you, beyond forgoing a potential nice windfall gain (forfeit of deposit, or more) at someone else's misfortune.

Unless you are have to forego an alternative buyer (which I would guess is unlikely), this seems like a resonable request to me. Just leave a reasonable short time frame after which the contract is void, so you can extract yourself if it appears to be going nowhere.
 
Hi Tim

The seller has to pay for the legal work to be done. The buyer should know that they are going to get finance for the house.

In practice a lot of buyers would use this to keep their options open. They pull out of a sale for other reasons, but claim failure to get finance approved. Fine, but they should pay an appropriate penalty for this. Maybe the appropriate penalty is the cost of the legal work.

Brendan
 
i bought 2 months ago, and had this exact blause built into the contract. i needed to get a medical for the life insurance, and there's no way i'd had risked my desposit. who's to say the medical wasn't going to uncover some condition i didn't know i had?

if the buyer had put in some cheeky penalty clause, i'd have told them to get stuffed, just on principle! a time limit would have been acceptable.

i realised it was a nuisance for the sellers, as far as organising removal vans, etc, but the truth is that it's a buyer's market at the moment, so i reckon you've just got to grin and bear it.

and yes, someone could back out and claim failure to get finance approved, but hey, that's life. i wouldn't, but i like to keep a clear conscience
 

Indeed legal work needs to be paid for. But so will the buyer including survey to boot - so their incentive to act in good faith is well aligned.

But we are not in normal times and to refuse what is not an outrageous request at risk of losing a sale would be something I would find a little too inflexible myself.
 
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