Exchange and complete same day - How?!

Horizon81

My question is fundamentally, as a house buyer, can the lender provide the advance (mortgage money) to my solicitor before contracts have been exchanged?

I'm reading through all the paperwork and my lender states that my solicitor requests a date for the lender to tranfer the money to them. If this date needs to be changed then they must be notified by 3pm on the day BEFORE the money is due to be transferred. But say there's a problem with the exchange, surely it's too late to call off the transfer??

So lets say the solicitor was planning to exchange and complete on a Tuesday. The previous week, the solicitor requested the advance from the lender to be done on the Tuesday. Tuesday comes and the lender transfers the money first thing. But say there's a problem and for some reason contracts can't be exchanged. The lender would have already transferred the money BEFORE contracts were exchanged. Am I missing something here or is it normal for lender to provide the mortgage money prior to exchange of contracts?

G_M

This is one of the several reasons why simultaneous Exchange/Completion is difficult and best avoided.
It can be done, but is easier where no mortgage is involved.

In the scenario you suggest (Exchange does not happen) I suspect you would receive a bill for the use of the lenders money for the period until it is returned to the lender - though I am guessing.

Horizon81

G_M you are indeed correct that the lender states that they would charge a fee (+ interest) if the solicitor transferred the money back to them, however, suppose the hold up was for a day or two... Would the solicitor have to transfer the money back or would there be any problem in them holding onto it until exchange/completion?

I'm still surprised that a lender can provide the advance prior to contracts having been exchanged.

Thrugelmir

Horizon81 wrote: »

I'm still surprised that a lender can provide the advance prior to contracts having been exchanged.

That's why the solicitor represents both the purchaser and the lender.

Horizon81

Thrugelmir wrote: »

That's why the solicitor represents both the purchaser and the lender.

Thanks, but what do you mean exactly? That the solicitor would only request the funds if they were confident in an exchange? That if it goes Pete Tong then they'll pay it back?
Until contracts are exchanged then anything could happen (either buyer or seller could pull out) so why would lender be happy to transfer funds before the exchange? Just in the interests of getting things moving quicker?

Thrugelmir

Horizon81 wrote: »

Thanks, but what do you mean exactly? That the solicitor would only request the funds if they were confident in an exchange?

Correct.

The solicitor has professional indemnity insurance so can hold funds in "transit".

Horizon81

Ok, I'll try and stop worrying. As a FTB I'm on a steep learning curve and trying to keep up with everything that's going on. Sometimes logic doesn't seem to apply to the housebuying process!

G_M

The solicitor has two clients - each paying for his services: you (the buyer) and the bank (the lender) (though the lender's legal fee is passed on to you).

Acting on behalf of his client, the lender, the solicitor holds the funds until Exchange/Completion, in his (protected) client account. The money still belongs to the lender, so if the purchase falls through, the lender knows their solicitor will return it.

Only if the deal goes through as planned (or perhaps a few days later) does the solicitor pay the vendor, at which point the loan is applied to his other client (you the buyer) and the money is no longer the lender's.

The same principal applies in a 'normal' purchase, where Exchange and Completion are separated by, say 3 weeks. At Exchange, the buyer has to pay the seller 10%(sometimes 5%) of the purchase price. This amount is transferred by the buyer to his solicitor in advance of Exchange so that the solicitor knows he has it on the day of Exchange. It too is held in the solicitor's client account. Should Exchange not happen and the deal falls through, the solicitor returns this amount (less any fees!) to the buyer.

Richard_Webster

Normally we would only request finds once contracts have been exchanged.

If a client is really insistent on meeting a particular completion date and for some reason we cannot yet exchange then I would warn them quite severely of the risks of ordering the money etc before exchange.

It will depend on the reason why exchange can't happen. If it is something that is very likely to be sorted in the next few days the risk is not so great as where there is some issue outstanding when there is no reliable information as to the position. In the latter case I would tell my client that it was stupid aiming for a particular completion date and would expect him to pay extra for my wasted time messing around with it.

As well as getting the mortgage money there are things like removals and getting time off work that have to be considered. A removal company is likely to want a booking firmed up several days before completion so a client risks paying for the removal company even if completion doesn't happen.

This reverberates up the chain as well. My client may be very sure that "everyone's agreed XX date" but I always warn them that others may not hold their nerve and when exchange doesn't happen when they thought it would, they change their minds and decide that they don't want to pay for an abortive removal. They usually do this after other solicitors in a chain have ordered their mortgage money so we all then have to see if we can stop it coming!

Horizon81

So assuming there was a hold up in exchange for a couple of days and the lender's money had already been transferred to the solicitor, would it be a problem for the solicitor to hold onto it for these few days or would it need to be returned to lender and later re-issued?

Richard_Webster

So assuming there was a hold up in exchange for a couple of days and the lender's money had already been transferred to the solicitor, would it be a problem for the solicitor to hold onto it for these few days or would it need to be returned to lender and later re-issued?

Depends on the lender how long we can sit on the money.

However, typically it takes about a week for the money to come so say you wanted to complete on Friday 16th March a solicitor would perhaps send the request on Thursday 8th March telling the lender it was required for 15th March (to avoid last minute hold ups). Money would probably come by TT on Wednesday 14th March so usually it wouldn't be a case of sending money back if exchange was held up by a couple of days because the money not yet have come. In my example sometime tomorrow 13th it would be too late to stop it. (E.g with Barclays /Woolwich getting through any kind of sensible message on the phone to the Indian call centre would be hopeless - you would have to fax the request to stop the money and wait for them to process it- by which time it could be too late.)

So if you were expecting an exchange last Thursday you could exchange today and it wouldn't make any difference - it would all fall into place - of course the danger I mentioned is that someone else in the chain decides today that they need another date for completion because they don't want to risk paying for abortive removals etc.