When purchasing a property, one of the most preventable and yet frequent issues is a mismatch between the name on a buyer’s finance approval and the name on a Contract.
This may be either a middle name not being added to a contract or a trust being added to a company.
Whilst it may seem like a minor issue, this discrepancy between the contract and finance approval can have significant legal ramifications for a buyer relying upon finance for a purchase.
Why does the buyer entity on the Contract need to match the Buyer entity on the Finance approval letter?
Finance is applied for and approved based on the person/entity who is going to be on the title of the property, as everything needs to match.
If the names do not match, then the bank will not hand over the funds at settlement, which means the buyer won’t have the funds to complete and this would result in them potentially being in breach of contract.
Legal amendments if the Contract is already unconditional
Most Contracts include a finance condition, which protects a buyer by ensuring they only proceed with the purchase, should they be able to obtain funding.
If they can’t obtain funding, then generally a finance condition would work so that the buyer would be able to terminate the Contract under the finance condition by the due date, to then have their deposit refunded to them and neither the buyer or the seller would have any further claim against one another.
If a Contract is not subject to a finance condition or the finance condition has already been satisfied before a formal approval letter has been issued to a buyer, then the finance clause no longer applies and a buyer would be stuck with the purchase. This would mean that the buyer won’t have the funding to settle and they’d therefore potentially be in breach of contract and risk the seller forfeiting their deposit and, worst case scenario, suing them.
If the Contract does not match the finance approval letter, because the buyer entities are different (such as a company name, instead of the individual director of that company) a deed of recission will need to be requested by the buyer to the seller to have the entity amended. The buyer would incur additional legal fees from the lawyer and from the seller’s lawyer, that is if the seller were to agree to the deed of rescission.
A seller may reject your request. If this is the case, you are locked into the contract with the original entity chosen and the following could happen:
- You would not have funding from the bank to complete the settlement;
- You would risk the seller forfeiting your deposit; and
- The seller could sue you.
How do I prevent this from happening?
Luckily there are a few ways to check to minimise this from happening:
- Always provide the Contract to your lawyer for review before signing;
- Confirm the exact buying entity with your broker or lender and accountant/financial advisor and get your lawyer to check that it matches the contract too;
- Double check the spelling and legal structure of your name, it must have all middle names included and if buying in a trust, it must show the full name of the trustee and the trust itself; and
- Ensure your finance application matches your intended purchasing entity.
Even small errors can have big consequences when purchasing a property. Ensuring your documents match from the start will save you stress, delays, and potentially thousands of dollars.
If you are ever unsure about your situation, contact FC Lawyers and we will go through the contract with you.
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