Settlement Delays….

What causes it? Why do we dread it? And how can stress be avoided? These two words can turn a busy Buyer’s Advocacy business day from ‘zero to ten’ on the stress meter.

Property settlements are carefully worked towards by a host of professional service providers, and when things go wrong the impact can be upsetting and often quite costly.

A property settlement refers to the moment that the money and property title are swapped between sellers and buyers. The settlement process itself literally takes minutes; cheques are signed off, documents are stamped and settlement agents shake hands and move on to the next transaction. However the lead up to settlement involves so much more; from loan documentation and certification within the bank’s settlement team, to solicitor-coordinated Transfer of Land document preparation, insurer certificates of currency issue, real estate agency release of deposit and the list goes on.

When one little thing either has an error, a delay or a road block, the implication is often a settlement delay. Settlement delays can arise for all types of reasons, but the common ones include:

• Purchaser being late with returning their mandatory signed documents to the bank or solicitor/conveyancer
• The property title being misplaced (believe it or not, this occurs more often than you could imagine). The owner of the property may have paid out their loan in full and held the title themselves, or they may still have it in the bank vault.
• Sometimes banks are delayed releasing the physical title (a piece of paper, literally) from a different branch’s bank vault.
• The purchaser may be reliant on a third-party property or financier. Whether it be a title to a second property, an equity release or a parental guarantee, any transaction with multiple title steps should have an appropriate settlement date, (and not 30 days).
• A typo on a document has gone unnoticed.

Sometimes it can come down to a missing hyphen on a surname or a company name stated in the wrong order.

Little mistakes can stop settlements.

• An incorrect or missing certificate of insurance for a refinance process or third party security property. When the bank or broker requests the certificate of insurance against a property, the owner must ensure that the address, their full name and the exact entity of the mortgagee is all correct.

Plenty of bank settlements and equity releases have been held up by this seemingly benign step.

• Vendor’s bank is not ready to settle. As ridiculous as this seems, it happens. Settlement bookings are precarious and conveyancers can sit on the phone on hold for over half an hour some days while they wait to make their client’s settlement booking. It’s a busy department in most banks.
• A caveat has been lodged against the property by a third party claiming an interest. Vendors must clear caveats in order to settle.
• Lost documents. Sometimes they go missing in the post. Other times they could be misplaced by any of the parties involved in the process.
• Difficulties with Verification of Identity, a reasonably new Victorian requirement for the buyer to be properly identified in person alongside their passport or driver’s licence by a qualified person. Locally, this is easy to do. When a buyer is overseas or remote though, finding a consulate and arranging this can be a challenge.
• The vendor not being physically ready for settlement. This may relate to a property that is not yet fully vacated or it could relate to unfilled conditions in their contract that determine the purchaser has the right to delay the settlement. We have had numerous final inspections that have triggered a warning to a vendor to uphold their contractual commitment in a matter of days, or our client will delay settlement.
• Buyers who didn’t sort their finance pre-approval and later hit some hurdles can miss settlement while they are still scrambling for finance. This is a dire situation to face and often it can result in rescission; the ending of the contract, the loss of deposit and the possibility that the vendor could sue for losses.

So what can happen when a settlement date is missed?

It depends on the vendor’s obligation to settle a concurrent purchase, the financial impact for each party, the communication between parties, and the mood of the parties.

In most cases, either or both parties will be facilitating another transaction on the same day. For example, the vendor may be settling their sale and then settling their subsequent home purchase. In cases like this, the removals truck is likely to be waiting in the street outside the new home.

If one party delays the settlement, the other party can justifiably charge them for the losses; from penalty interest incurred, to removals fees, emergency accommodation and so on.

If there is a chain of settlements involved, the losses can be expensive.

When things go wrong and parties are sympathetic to one another, problems can be solved and worked around effectively. While parties have a right to claim losses and can legally charge penalty interest, often they don’t elect to do so.

Charging penalty interest is optional.

Human behaviour is interesting to observe, and the correlation between respectful dealings and settlement glitch work-arounds is strong.

The purchasers who have offended agents and/or their vendors are less likely to receive sympathetic treatment in their time of need than those who have been respectful. Vendors can seek vengeance through taking the hard line if the opportunity arises, and vice-versa.

Property dealings need to be firm and well thought out, but they also need to be done with respect. This includes the selling agent too. Buyers and vendors should never under-estimate the influence that the agent can have when attempting to smooth out a settlement delay.

We often lean on the selling agent to assist with settlement ordeals, and they can often be the most valuable conduit on a tough day.

My three best tips for a smooth settlement are;

1. Have your finance position fully credit-assessed and pre-approved

2. Don’t be late with your documents once you have purchased

3. Be respectful to the vendor and agent. You may need them to do you a huge favour in your hour of need.

Images sourced from Lifehacker and Pixabay