Loan fallen through? Keep that bank letter

Buyers will no longer be able to back out of a property deal by saying they cannot get finance, the Real Estate Institute of New Zealand (REINZ) is warning.

At present, if a finance condition is inserted into a sale and purchase agreement and the buyer is unable to obtain finance, their word is generally enough for an individual to pull out of a contract.

But under the changes to the finance condition in the 10th edition of the sale and purchase agreement, buyers will now be required to provide evidence if they can’t raise finance.

Evidence might include a letter or email from the buyer’s bank confirming that finance has been declined.

‘‘This is a significant change to the sale and purchase agreement and it’s imperative that consumers understand the implications. If they can’t provide evidence they can’t raise the finance, they could be forced to proceed with the purchase or face other legal action by the vendor,’’ REINZ chief executive Bindi Norwell said.

‘‘It’s also essential that anyone looking to purchase a property takes legal advice and talks to their financial provider so that they understand exactly what they’re signing.’’

Norwell said there had been a number of cases where people had used a finance clause to back out of a deal when they were actually cancelling it for other reasons.

That had prompted a decision to tighten the rules.

‘‘I don’t think it’s common but there are cases of it – enough to do something about it.’’

People who could not provide evidence that they could not obtain finance would potentially be liable and have to go through with the purchase, she said.

‘‘This is a significant change to the sale and purchase agreement and it’s imperative that consumers understand the implications.’’

Bindi Norwell,

REINZ chief executive

But those who were legitimately unable to qualify for a home loan could present bank documentation to show that.

The New Zealand Law Society’s property law section chairman, Duncan Terris, said there had always been an obligation on buyers to do everything necessary to complete a deal.

He said he had previously challenged buyers whom he suspected had not tried for finance, and they were subsequently forced to settle the deal.

But he said this change made it explicit within the finance clause.

‘‘That’s the most common one where purchasers think: ‘I’ve changed my mind – I’ll just crash it on finance.’ ’’