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A mortgage offer can still be withdrawn after exchange – how to minimise the risk?
V_for_viennetta
Posts: 21 Forumite
Not everyone realises that a mortgage offer can still be withdrawn after exchange. Has this ever been a concern for any of you, and what have you done to minimise the risk? It seems to me the only realistic options are to minimise the time between exchange and completion, or to amend the sale contract (which is unlikely to be accepted).
In my case, the seller asked for quite a long time between exchange and completion, to find somewhere to rent. In principle I’d be fine with it, but it got me thinking: how binding is the mortgage offer?
My mortgage offer looks like this: (cannot post links as new user)
samconveyancing.co.uk/news/mortgage/can-a-mortgage-offer-be-withdrawn-after-exchange-of-contracts-6262
If you read it (not everyone does), you’ll see that the lender can withdraw the offer for a number of reasons; the most typical is ‘material change in my circumstances’ (e.g. I lose my job), but also if there is a change to the value of the property. For example, this might mean that, if there is some kind of financial or political catastrophe (e.g. Brexit related), the bank might take the view that the property is worth less and withdraw the offer. This is similar to a Material Adverse Change or Material Adverse Event clause in business contracts.
I asked my solicitor if we can add a clause to the sale contract that says I am not liable (i.e. the seller cannot keep the deposit and cannot sue me) if the mortgage offer gets withdrawn and it’s not my fault, i.e. I want to be liable if I faked documents or lied to the bank, not if the bank changes its mind.
My solicitor says I am being paranoid, she has never seen this in 20 years of practice, that no solicitor would advise their client to accept it because no seller should be liable for things outside of their control. But then why should I be liable for things outside my control??? At the end of the day, my solicitor is fine with me taking the risk that the bank changes its mind and the seller keeps my deposit and sues me?
If the bank changes its mind, the transaction fails and the chain collapses. Plus, these clauses get the sellers to keep the deposit and maybe sue me, but they don't prevent the risk for the seller!
Yes, I get it that it’s rare, I get it that there would be a political nightmare if banks started withdrawing mortgage offers because of Brexit, but rare doesn’t mean impossible. If a clause is in a contract, it means it can be invoked. Not to mention Brexit is unchartered waters – we may all have our opinions but no one can know for sure. I am willing to accept the risk that the property might be worth less in 2 years’ time, but not the risk that the bank pulls out, I lose my deposit and also get sued!
I find it crazy that everyone is so superficial. I find it crazy that the standard conditions of sale do not have an exception for when an offer gets withdrawn and it’s not the buyer’s fault, and I find it crazy that solicitors do not alert clients to the potential risk. What’s the risk that the house gets blown up between exchange and completion? Basically theoretical, yet buyers must insure against that!
PS If you read the standard conditions of sale (which not everyone does), i.e. the standard Law Society template for buying and selling property,
lawsociety.org.uk/support-services/advice/articles/standard-conditions-of-sale/ , section 7.4.2(a) is very clear: if the buyer fails to complete, the seller may keep the deposit and claim damages. There is also case law confirming that, if a buyer pulls out and the seller sells for a lower price, the seller can sue for the difference. There were stories in the press about banks withdrawing mortgage offers to Thomas Cook employees after the company went bust, and of people risking bankruptcy. How many of those people were told it never happens, that solicitors have never seen something like that, etc?
In my case, the seller asked for quite a long time between exchange and completion, to find somewhere to rent. In principle I’d be fine with it, but it got me thinking: how binding is the mortgage offer?
My mortgage offer looks like this: (cannot post links as new user)
samconveyancing.co.uk/news/mortgage/can-a-mortgage-offer-be-withdrawn-after-exchange-of-contracts-6262
If you read it (not everyone does), you’ll see that the lender can withdraw the offer for a number of reasons; the most typical is ‘material change in my circumstances’ (e.g. I lose my job), but also if there is a change to the value of the property. For example, this might mean that, if there is some kind of financial or political catastrophe (e.g. Brexit related), the bank might take the view that the property is worth less and withdraw the offer. This is similar to a Material Adverse Change or Material Adverse Event clause in business contracts.
I asked my solicitor if we can add a clause to the sale contract that says I am not liable (i.e. the seller cannot keep the deposit and cannot sue me) if the mortgage offer gets withdrawn and it’s not my fault, i.e. I want to be liable if I faked documents or lied to the bank, not if the bank changes its mind.
My solicitor says I am being paranoid, she has never seen this in 20 years of practice, that no solicitor would advise their client to accept it because no seller should be liable for things outside of their control. But then why should I be liable for things outside my control??? At the end of the day, my solicitor is fine with me taking the risk that the bank changes its mind and the seller keeps my deposit and sues me?
If the bank changes its mind, the transaction fails and the chain collapses. Plus, these clauses get the sellers to keep the deposit and maybe sue me, but they don't prevent the risk for the seller!
Yes, I get it that it’s rare, I get it that there would be a political nightmare if banks started withdrawing mortgage offers because of Brexit, but rare doesn’t mean impossible. If a clause is in a contract, it means it can be invoked. Not to mention Brexit is unchartered waters – we may all have our opinions but no one can know for sure. I am willing to accept the risk that the property might be worth less in 2 years’ time, but not the risk that the bank pulls out, I lose my deposit and also get sued!
I find it crazy that everyone is so superficial. I find it crazy that the standard conditions of sale do not have an exception for when an offer gets withdrawn and it’s not the buyer’s fault, and I find it crazy that solicitors do not alert clients to the potential risk. What’s the risk that the house gets blown up between exchange and completion? Basically theoretical, yet buyers must insure against that!
PS If you read the standard conditions of sale (which not everyone does), i.e. the standard Law Society template for buying and selling property,
lawsociety.org.uk/support-services/advice/articles/standard-conditions-of-sale/ , section 7.4.2(a) is very clear: if the buyer fails to complete, the seller may keep the deposit and claim damages. There is also case law confirming that, if a buyer pulls out and the seller sells for a lower price, the seller can sue for the difference. There were stories in the press about banks withdrawing mortgage offers to Thomas Cook employees after the company went bust, and of people risking bankruptcy. How many of those people were told it never happens, that solicitors have never seen something like that, etc?
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Comments
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I have a client who works for Thomas cook who are buying a newbuild with a long gap between exchange and completion. Their offer got pulled but I was able to get it reinstated despite it not fitting the lenders affordability anymore (about 30k under)
It is the first time I have had that happen in 12 years of broking so the risk is low but it is still there.I am a Mortgage Adviser
You should note that this site doesn't check my status as a Mortgage Adviser, so you need to take my word for it. This signature is here as I follow MSE's Mortgage Adviser Code of Conduct. Any posts on here are for information and discussion purposes only and shouldn't be seen as financial advice.0 -
V_for_viennetta wrote: »
I find it crazy that everyone is so superficial. I find it crazy that the standard conditions of sale do not have an exception for when an offer gets withdrawn and it’s not the buyer’s fault, and I find it crazy that solicitors do not alert clients to the potential risk. What’s the risk that the house gets blown up between exchange and completion? Basically theoretical, yet buyers must insure against that!
How would you define it being the buyers fault? Its a subjective thing sometimes.
How about if the buyer forgot to post back a document 8 weeks ago and built in a week long delay where it could have completed before a redundancy was announced. Are the delays the buyers fault for not posting paperwork back on time? as then it would have completed before the redundancy was announced
What about if you exchanged contracts and one of the sellers in the chain was in a car crash and was unable to move to the new 4 bed house and needed to stay in the 2 bed bungalow for mobility reasons. Is this ok to waive any penalties as it wasnt their fault? Or does it depend on the reason for the car crash in the first place?
It would open up an absolute minefield of blame avoidance if things collapsed post exchange.
People should just have good legal advice on what the risks are and then make a decision on what to do. Been requested to exchange 2 months in advance? refuse as you aren't comfortable with the risks. simple1 -
You're the person in the chain who is in most control of whether or not you can find enough money to complete your purchase. And realistically, the other party has no means of verifying whose "fault" it is that you haven't managed to come up with the cash anyway. Why should anybody else be taking the risk?V_for_viennetta wrote: »But then why should I be liable for things outside my control???0 -
Excellent. So if your seller is subsequently unable to complete an onward purchase because of your failure to complete, they have to suck up all the costs of the chain above?V_for_viennetta wrote: »I asked my solicitor if we can add a clause to the sale contract that says I am not liable (i.e. the seller cannot keep the deposit and cannot sue me) if the mortgage offer gets withdrawn and it’s not my fault, i.e. I want to be liable if I faked documents or lied to the bank, not if the bank changes its mind.
Through of course, no fault of their own?
You think that is a realistic clause for anyone to agree to?
Would you agree to it when you sell a house?
Your solicitor is being very polite if you ask me.My solicitor says I am being paranoid, she has never seen this in 20 years of practice, that no solicitor would advise their client to accept it because no seller should be liable for things outside of their control.
Why should the seller be liable?But then why should I be liable for things outside my control???[/B] At the end of the day, my solicitor is fine with me taking the risk that the bank changes its mind and the seller keeps my deposit and sues me?
If the bank changes its mind, the transaction fails and the chain collapses. Plus, these clauses get the sellers to keep the deposit and maybe sue me, but they don't prevent the risk for the seller!
What you don’t realise that it is your fault if you fail to complete on your side of the contract. You can of course sue the lender if you think their actions have caused you a loss.
If you don’t like it then buy some insurance or don’t buy a house.0 -
You ask what you can do to mitigate the risk so I’ll ignore the rants bits and unreasonable clauses that you want to add.
Be honest on your application
Don’t stretch yourself to the limit on affordability
Don’t agree to a long period between exchange and completion.1 -
V_for_viennetta wrote: »I asked my solicitor if we can add a clause to the sale contract that says I am not liable (i.e. the seller cannot keep the deposit and cannot sue me) if the mortgage offer gets withdrawn and it’s not my fault, i.e. I want to be liable if I faked documents or lied to the bank, not if the bank changes its mind.
If i had a clause like that in the contract my buyer wanted me to agree to, it would be back on the market 1 minute after i read it and I'd dump the buyer because who knows what other flaky excuses they might come up with to pull out lower the price or whatever, plus it woudl mean they have ignored their solicitors advice and so again, who knows what else they might get up to.0 -
OMG! What anger, what aggression! People attack me as if I were some low-life trying to mess up with the sellers when, in fact, the sellers have an unusual demand (2+ months between exchange and completion, with Brexit and probably a general election in between) and I am simply trying to understand what risks this would expose me, and how to mitigate them. What is wrong with that? Do you recommend against trying to understand the risks of an unusual demand?
Very simple. In the special conditions, ie in the part where buyers and sellers add the bits which they negotiate explicitly, add something like:Deleted_User wrote: »How would you define it being the buyers fault?
"clause xyz (the one that lets the sellers keep the deposit sue and keep the deposit if the buyers fail to complete) shall not apply if the mortgage offer is withdrawn for a reason other than misrepresentation or fraud".
Have I lied about my income? Have I failed to disclose big debts? Have I faked any documentation? Then I'm on the hook.
But if I have done nothing of the sort and the bank changes its mind, then this clause should protect me.
I don't follow. In your example, the bank wouldn't withdraw the mortgage offer for a reason other than misrepresentation or fraud, so I'd still be on the hook - and rightly so.Deleted_User wrote: »How about if the buyer forgot to post back a document 8 weeks ago and built in a week long delay where it could have completed before a redundancy was announced. Are the delays the buyers fault for not posting paperwork back on time?
As above: the bank wouldn't withdraw the mortgage offer for a reason other than misrepresentation or fraud, so I'd still be on the hook - and rightly so.Deleted_User wrote: »What about if you exchanged contracts and one of the sellers in the chain was in a car crash and was unable to move to the new 4 bed house and needed to stay in the 2 bed bungalow for mobility reasons.
Can you think of a relevant example in which my proposed wording would let the buyer off the hook for something which was his fault? Right now I can't.
Exactly - this was, in fact, my starting point.Deleted_User wrote: »Been requested to exchange 2 months in advance? refuse as you aren't comfortable with the risks. simple
See above. I don’t think it is crazy to not want to be on the hook if the bank changes its mind. Verifying if the mortgage offer gets withdrawn for fraud or misrepresentation, or for any other reason, shouldn’t be too complicated. I may be wrong, but AFAIK a bank that withdraws an offer would explain it in writing, wouldn’t it?You're the person in the chain who is in most control of whether or not you can find enough money to complete your purchase. And realistically, the other party has no means of verifying whose "fault" it is that you haven't managed to come up with the cash anyway. Why should anybody else be taking the risk?0 -
There is no chain in this specific case (how many other parties in a chain would agree to a 2+ month delay between exchange and completion?), but anyway, you seem to fail to realise that, if the bank changes its mind and withdraws my offer, the chain collapses anyway, regardless of whether my seller can keep my deposit and sue me or not.SpiderLegs wrote: »Excellent. So if your seller is subsequently unable to complete an onward purchase because of your failure to complete, they have to suck up all the costs of the chain above?SpiderLegs wrote: »You think that is a realistic clause for anyone to agree to?
In fact, yes.
You seem to fail to realise that, if the sellers are in a chain, they, too, are exposed to the risk that my bank changes its mind at the last minute, which would cause a total chaos of everyone suing each other and keeping each other’s deposit.
By contrast, if all parties in a chain were reasonable enough to understand this, and if every contract in the chain had the same clause (don’t keep the deposit and don’t sue if the mortgage offer gets withdrawn for a reason other than misrepresentation or fraud), they would ALL be more protected.SpiderLegs wrote: »Would you agree to it when you sell a house?
Yes – if the wording is very clear and only covers misrepresentation or fraud.
Again, if there is a chain, my seller is, practically, already liable to his seller if my bank changes it mind – do you not see that?SpiderLegs wrote: »Why should the seller be liable?
Oh, no, I realise that all too well – that is precisely the risk I am not comfortable with: the risk that the lender changes its mind and I end up liable for it.SpiderLegs wrote: »What you don’t realise that it is your fault if you fail to complete on your side of the contract.
On what basis? The mortgage offer very clear entitles the lender to change its mind till the last second.SpiderLegs wrote: »You can of course sue the lender if you think their actions have caused you a loss.
What insurance? Insurance against the lender changing its mind, going out of business or having its licence revoked???SpiderLegs wrote: »
If you don’t like it then buy some insurance or don’t buy a house.
Or, more banally, as I said at the beginning, negotiate a shorter time between exchange and completion.
At the end of the day, I think I’ll tell the sellers that I am not comfortable with such a long time between exchange and completion, because the mortgage offer is not fully binding, the bank can change its mind, and with Brexit and a general election who knows what can happen, so Ill offer them two choices:- One week between exchange and completion, or
- 2 months, BUT with my change that the clause which lets them sue and keep my deposit won’t apply if the mortgage offer is withdrawn for a reason other than misrepresentation or fraud.
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Well, but would you ask your buyer to wait 2+ months between exchange and completion? That's how all of this started, after all.AnotherJoe wrote: »If i had a clause like that in the contract my buyer wanted me to agree to, it would be back on the market 1 minute after i read it and I'd dump the buyer because who knows what other flaky excuses they might come up with to pull out lower the price or whatever, plus it woudl mean they have ignored their solicitors advice and so again, who knows what else they might get up to.
What is flaky in "if the mortgage offer gets withdrawn for a reason other than misrepresentation or fraud"? What is flaky in not wanting to be on the hook if the bank changes its mind?
If you are in a chain, do you realise that, with the standard conditions of sale, YOU are on the hook if your lender changes its mind, but also if your buyer's lender does?
Please enlighten me because I fail to follow.
Or is your reasoning simply that contract terms should be set in stone, and anyone who dares actually read them or question them is an unreliable low-life who's up to no good and shouldn't be trusted?0 -
I just don't see why any seller would agree to any contract terms that offer them zero benefit and give all the protection to the buyer.
Also, conditional exchanges are a thing already. They could just be used more0
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