Lenders To Be Responsible For Delivery of All Funds At Settlement

[LawyersConveyancing]

Continuing from the thread titled Transfer Guidelines, I wish to put it to the Community that it is the responsibility of an incoming mortgagee to ensure that it has sufficient funds available to effect settlement.

This means that when a lender agrees to advance loan moneys to a purchaser of real estate it is the lender's responsibility to take steps to ensure that the borrower will have applied for sufficient loan funds to cover the purchase price of the property, plus stamp duty, registration, adjustments and other costs, so that there will be no shortfall at settlement.

Alternatively, if there will be a shortfall at settlement, it is up the lender to ensure that the borrower has sufficient funds to add to the loan funds in order to top-up the loan funds and that appropriate permissions have been obtained if access to savings or other accounts is required.

It is never the responsibility of the borrower's legal practitioner to take on a role similar to that of the bank by holding additional funds on behalf of the borrower when the borrower is paying their lender for banking services, as this may incur unnecessary additional legal costs.

PEXA allows the lender (the incoming mortgagee or IM) to provide all Source Funds and to remit any surplus to an account nominated by the borrower.

As stated in the earlier thread:

"So, the practitioner uploads the indicative figures 5 days before settlement, having determined these from information available as at that time, and then it is up to the IM to check those figures, ensure that there are sufficient funds available to cover them, and to discuss the matter with the borrower if funds are not sufficient and a top-up is required.

Final amounts determined and entered 2 days before settlement - all done!

No need for the practitioner to be involved in any bank processes at all.

If the IM left holding any excess funds these can be deposited into the borrower's account post settlement.

If this procedure is followed it is indeed a simple process."

Peter Mericka

Lawyers Conveyancing

[Ames]

Hi @LawyersConveyancing

I can see a couple of issues with this proposal.

Some lenders are not deposit holding institutions and don't provide savings accounts. If the lender is not an ADI, they can't legally provide the service you suggest.

Secondly, how can it "never" be the responsibility of a practitioner to assist their own client (not just the bank's borrower customer) to provide funds to a settlement? You only need to consider the example of their being cleared funds and no lender at all to see that at times, a lender has no role to play.

Ames

[LawyersConveyancing]

Hi @Ames,

Too many assumptions being made here. If a lender is not an ADI why should it fall to me and my staff to make up for this shortcoming? The lender needs to become an ADI, or lobby to be entitled to provide basic services, one of which is to be entitled to accept funds so as to be able to deliver ALL funds to settlement. I can do it with my little trust account when there is no lender, so surely a lender should be able to get itself into a position to provide at least an equal to service to mine.

One thing that really gets my back up is to have someone preach to me by telling me about my duty to assist my client, when in fact the party being assisted is the lender. The clunky system we have at present presumes that the lender can snap its fingers at me and tell me to gather up the balance needed for settlement, providing assistance to a lender who lacks the capacity or will to have its own borrower client top up the loan account. Sorry, but I'm not a handmaid to the lender.

The example of where there is no lender is a good one. In such a case I have full control over the funds I hold in trust, and if there ain't enough, then I can tell the client to deposit more or settlement can't take place. If the bank wants me to take responsibility for delivering a client's funds to settlement I'm happy to take  FULL responsibility or none at all. In other words, the bank can put funds into my trust account well before settlement and I will deliver ALL funds to settlement. If the bank doesn't want to do this, then I expect the bank to gather ALL funds so that it can deliver them all to settlement.

This nonsense of the bank delivering only part of the settlement funds and then the practitioner having to sort out the balance is just ridiculous and complicates things unnecessarily.

Instead of assuming that this is the only way, and expecting everyone to keep doing the same old same old, how about we remove this bottleneck. Either the bank or the practitioner should deliver ALL FUNDS to settlement.

Peter Mericka

Lawyers Conveyancing

STOP PRESS:

We've just received a telephone call (5.15 p.m.) from a client whose settlement is taking place tomorrow. He has just been told by his loan broker that he is short of funds for settlement and that he has to deposit top-up funds into our trust account. So, the lender, being the only party who knew the final figure available for settlement, has suddenly made us responsible for timely settlement, and the client is now expecting us to do whatever is necessary to settle on time. Neither I nor my staff need this sort of stress!

[jgusew]

@LawyersConveyancing Mate we had a horrible one today.

3 workspaces - the banks only came in at the 11th hour - you might have seen my other banks delaying settlements post.

We eventually got 2 workspaces ready - the third was a workspace where the POT and IP were the same practitioner. The poor guy had been so onto everything the whole time. Unfortunately - the workspace just wouldnt go to financially ready. So at the 11th hour all of a sudden everyones ready to settle but in the end 

The most frustrating thing is that after failing all day, we get to 16:00 and trying to call PEXA (they answered after 16:30 after the last settlement and it was a simple - oh, the IP and POT need to make sure they sign the settlement summary as both roles...

Had the FI been responsive with us along the way, doing thigns when they are supposed to, we wouldnt have been in this situation. Now more work for everyone!

[LawyersConveyancing]

@jgusew the overarching problem is that the banks still see practitioners as willing mules to be loaded up with tasks! So, to make my position quite clear, I make the following declarations:

1. I will NOT accept responsibility for ensuring that the bank's Discharge Authority is completed.

2. I will NOT accept responsibility for providing an insurance certificate of currency or any other document to a lender.

3. I will NOT accept responsibility for having the Settlement Summary completed in time for the lender to check it prior to settlement.

4. I will NOT accept responsibility for topping up loan funds when the lender has not arranged for sufficient funds to be delivered to settlement.

5. I will NOT accept responsibility for topping up loan funds when the lender has depleted them by late deduction of fees etc.

6. I will NOT accept responsibility for explaining to a client why their lender has delayed or crashed settlement.

I will NOT allow lenders to exploit my small law firm, my staff or my clients!

Peter Mericka

Lawyers Conveyancing

[LawyersConveyancing]

Hi @Ames,

A thought regarding the incapacity of lender that is not an ADI to hold top-up funds on behalf of a borrower client. Can they not use the PEXA Source Account, just as any practitioner would?

The lender would determine how much money is available from the loan after deductions for fees, charges taxes etc., look at the sales price less deposit, estimate a suitable buffer amount to cover adjustments, and arrange for the borrower to deposit sufficient top-up funds into the PEXA Source Account. Problem solved, without calling on the practitioner to become involved in the financial side of things.

That's how we do it when there is no lender involved.

Peter Mericka

Lawyers Conveyancing