special condition on contract for Sale for loan approval

Hi All,

I am selling and at the contract stage and have noticed that the purchasers have put in a special condition for them to get back the deposit if their loan approval is not valid or approved and that they can rescind the contract and get their deposit back in full, with no interest charges or penalties.

Is this condition normal? and should i just go along with this, and what is the point of a deposit if they can just rescind it anyways and get it all back?

Full text on contract is
'This contract is subject to the purchasers obtaining a loan sufficient to enable them to purchase the property herein and the said loan approval being valid and ready for drawdown at closing date hereof and in the event that the said loan approval is not obtained or is not valid and ready for drawdown at the closing date, the the purchasers shall be entitled to rescind this contract, in which case they shall be refunded their deposit in full, without interest, costs or compensation thereon. Furthermore, this contract is subject to the purchasers being able to comply with all loan conditions attaching to any such Loan approval received from haven mortgages and in the event that the purchasers cannot or do not comply with any of these conditions by the closing date herein, then once again the purchasers can rescind this contract in which they are entitled to a full refund of their deposit without interest, costs or compensation thereon.'

The solicitor says this is normal. however this is my ex'es solicitor firm and house sale is a part of the divorce. He has already lost a sale for more money as took too long to progress sale and never took a deposit then either. So i am worried about his advice and competency now to be honest.

I would consider it normal too, I would always advise prospective mortgage applicants to ensure the contract was signed subject to loan approval. They are just protecting their deposit if they don't get a mortgage, that would be a major loss if they didn't, I am sure yours said the same day one when you bought assuming you did so with a mortgage.

The other side to that is if I was signing a Contract I wouldn't sign without loan approval and I definitely would not allow that clause in my contract if I was selling. It is a sellers market right now so you are in the driving seat here and I would not tolerate a clause of that nature - it gives them too much leaway to pull out and just use that as an excuse.

"So i am worried about his advice and competency now to be honest."

I think you might be looking for reasons not to trust him. His advice on the loan approval clause is spot on. It is perfectly usual. You can refuse to have it in and you will probably lose the sale.


"The other side to that is if I was signing a Contract I wouldn't sign without loan approval and I definitely would not allow that clause in my contract if I was selling. It is a sellers market right now so you are in the driving seat here and I would not tolerate a clause of that nature - it gives them too much leaway to pull out and just use that as an excuse."

It is not just about loan approval - it is about being able to comply with conditions. It is perfectly usual.

You might not tolerate it, if you were in the driving seat, but don't be so certain that the OP has a gang load of prospective purchasers banging on the door to buy !

mf

Ok so this does seem to be a normal condition, its news to me, and i don't think we had this condition in when we bought in 2007, that's fine then. so in what situations can a seller hold onto a deposit then? and does this mean that a deposit now is meaningless really? what is the point then of the deposit if the purchaser can get it back at any stage?

this will be good to know as to when i will want to buy and i will ensure this clause is in there.

And i am not looking for reasons to distrust him, its just i trusted him before completely and he was very slow and lost a better sale earlier in the year, and in a divorce that wasn't ideal and caused more grief. I have been chasing him to complete the sale in a timely manner this time.

Also we had another bidder after we went sale agreed for a couple of grand extra but we stuck with the bidder putting in this clause, so i was surprised that they would be putting in a clause to this effect.

Sully11 said:

Also we had another bidder after we went sale agreed for a couple of grand extra but we stuck with the bidder putting in this clause, so i was surprised that they would be putting in a clause to this effect.

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Unless this clause is put in you are in effect restricting the sale to buyers who have the cost in cash.

Exactly, limit yourself to cash buyers if you don't want this clause. No one needing a mortgage would buy without this clause, all sorts of things can go wrong with a mortgage application and draw down and the buyer couldn't risk losing their deposit in that situation. Now if they just changed their mind you could keep the deposit as that would be entirely their decision, the mortgage is not entirely up to them to grant.

You could tell them that if they want this clause you want an equivalent one.... allowing you to pull out if you get a better offer ... They shouldnt be signing contracts if they are not sure about their loan offer or their ability to meet the conditions. If a catastrophy happened to prevent a genuine and prudent buyer from completing, a force majeur clause might be more appropriate.

I think you need to get the full facts here. It looks like the buyers don't yet have loan approval so you should go and ask them or their solicitor where they are on this and also put a date by which they must have loan approval (at least a couple of weeks before closing) or the deal is off. You could also put the house back on the market until you get an acceptable response

thedaddyman said:

I think you need to get the full facts here. It looks like the buyers don't yet have loan approval so you should go and ask them or their solicitor where they are on this and also put a date by which they must have loan approval (at least a couple of weeks before closing) or the deal is off. You could also put the house back on the market until you get an acceptable response

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They may or may not have approval in principal, but the principal doesn't become reality until the bank are satisfied that this property meets their criteria. Banks have been known to refuse to issue mortgages where they take issue with something in the survey results.

consider saying that you agree to the clause but that the booking deposit is non refundable but the balance of deposit on signing of contract would be refundable ? Would that assuage your concerns ?

Alternatively have a tight closing on the sale so once the contracts are signed that the closing is quickly thereafter.

I would not sign a contract without having the finance in place to complete the contract and the purchaser is protecting himself in the event that the loan offer is not provided by the bank which could be for many reasons (survey, estate agents valuation, change of circumstances of borrower, too long to closing and loan offer expires etc)