Purchaser’s failure to have finance in place for settlement

Buying property is exciting, but it carries a hard commercial edge that catches some purchasers out: if you can’t complete because your finance isn’t ready, the consequences can be severe — and they fall on you, not the vendor.

If a contract is terminated because the purchaser fails to have adequate finance in place to settle, the purchaser can face all of the following:

• Forfeiture of the deposit paid on exchange;
• Liability for the balance of the full 10% deposit, where only a reduced deposit (say 5%) was paid on exchange;
• Responsibility for the vendor’s costs and expenses arising from the termination; and
• Liability for any shortfall if the vendor re-sells the property for less than the original price.

These risks are sharpest at auction. A successful bidder must exchange contracts unconditionally, on the spot, immediately after the auction and pay the deposit as the contract requires — there is no cooling-off period and no ‘subject to finance’ safety net. That means your finance needs to be genuinely settled, not merely expected, before you raise your hand.

For that reason, we strongly encourage purchasers to have finance formally approved and their contract reviewed before bidding or exchanging. A contract review before you commit is far cheaper than the consequences of a failed settlement.

Brooklyn Lawyers provides detailed contract reviews for purchasers buying property in NSW and advises on the finance, auction and settlement risks before you’re bound.