In a scenario familiar to agents and law firms, a Cairns court ruled last month how hard buyers must push their bank loan applications to meet contract obligations to “take all reasonable steps” in getting finance approval in subject-to-finance residential contracts.
The $575,000 Andrews Close apartment – signed for on 3 September 2010 – was subject to finance in the amount of $400,000 from ING Bank by 10 September 2010.
Buyer, Anne Miller had the bank’s “pre-approval” but when the broker went to resubmit the loan after the contract was signed, the bank notified her it would “require a brand-new loan application”.
Thinking it could no longer be processed by ING within the tight time frame, the broker advised Miller to try instead, a loan from the Rock. All dealings with ING ended.
The Rock proved perhaps less dependable than its name implies and fell short in the race to get the approval across the line by the extended 17 September due date. The buyer notified termination under the finance clause and demanded return of her $10,000 deposit.
Sellers, Trevor and Irene Hauf, challenged Miller for not taking sufficient steps to obtain approval from ING, it being the nominated bank in the contract reference schedule.
In response, the buyer argued it would have been “impossible” to get finance approval within the four business-day finance period and therefore no step “untaken by her” would have got the deal over the line, regardless of the lender.
Unfortunately, no evidence was called for from ING as to the her prospects of obtaining an approval by the extended finance date.
Thus the buyer had, so held the court, repudiated the contract and the Haufs – or rather perhaps (the judgment is silent on this), their selling agents – were entitled to retain the deposit.
The court ruled that REIQ standard condition 9 relief was inapplicable and that the only contractual remedy open to the seller was forfeiture of the deposit.
“It is clear that it is not intended that non-compliance in this regard is within the contemplation of clause 9” because of the restriction in standard condition 3.3 that termination was “the sellers’ only remedy”.
The seller successfully appealed that part of the ruling that restricted them to forfeiture of the deposit. The Court of Appeal was of the view that failure to make the appropriate finance application was equally a breach by the buyer which allowed recourse to all clause 9 remedies including recovery of loss on the re-sale.