Do you need a deposit when you are selling one house and buying another?

silvercar

So how much are you selling for and how much are you buying for?

TBeckett100

174k sale and 200 buy

silvercar

So you will receive 17,400 from your buyer; you add 2,600 to it and pass the total 20,000 to your seller.

All the money is actually held in solicitor's client accounts so is quite safe.

If you can't afford to add 2,600, you tell your solicitor and he will try and insist on a 10% deposit from your buyer and for you to pass an 8% deposit to your seller.

TBeckett100

interesting, what if my buyer is using a 100% mortgage

silvercar

The there are 2 options, you either all accept a nominal amount as a deposit eg £500 (and your solicitors moan at you) or you exchange and complete on the same day. Occasionally a mortgage lender will allow the deposit to be loaned out before completion, but thats rare.

As your buyer will have £1,740 stamp duty to pay, not actually due until 28 days after completion, that could be used as a small deposit. Watch the solicitors moan at that one as they like the money to be done and dusted before completion!

franklee

silvercar wrote: »

So you will receive 17,400 from your buyer; you add 2,600 to it and pass the total 20,000 to your seller.

All the money is actually held in solicitor's client accounts so is quite safe.

Suppose I am buying from TBeckett100 and TBeckett100 is buying from you. I pass my 17,400 cash to TBeckett100's solicitor and TBeckett100 adds 2,600 to it and it is all passed onto your solicitor.

Lets say after exchange of contracts TBeckett100 decides he wants to stay put.

My 17,400 is sitting in your solicitors account and you are entitled to keep it as it was given to you as a deposit on your sale and TBeckett100 is in breach of that contract.

But what about me, I'm now 17,400 down and TBeckett100 is in breach of the contract with me too. Why should I be the one who has to sue TBeckett100 for MY own money back Why aren't you taking the risk after all it's my cash!

Alternatively if TBeckett100 fell behind with his mortgage payments and the house he is in gets repossessed or TBeckett100 goes bankrupt before the sale completes then suing him for my money back will not get it all back any time soon. Yet you have my cash :eek: I am really not happy!

silvercar

Lets say after exchange of contracts TBeckett100 decides he wants to stay put.

Why would anyone agree to sell their house, incur considerable expense in finding a new property. Enter a legal binding agreement and then decide not to move?

Even in that unlikely scenario, the buyer's solicitor would nip into court and very speedily get a judgement ordering them to vacate the property. They have entered a legally binding agreement to sell; its not pay 10% and then think if you want to go. Tbeckett would also be liable for everyones costs.

But what about me, I'm now 17,400 down and TBeckett100 is in breach of the contract with me too. Why should I be the one who has to sue TBeckett100 for MY own money back Why aren't you taking the risk after all it's my cash!

You'd get the costs back through the courts, very quickly. After all someone has just breached a legally binding agrement, there would be no defence.

Plus all the solicitors would be agreeing the action.

The money is never at risk as it is in the solicitors accounts, no-one is walking into the sunset with fivers in their back pocket.

Alternatively if TBeckett100 fell behind with his mortgage payments and the house he is in gets repossessed

That can't happen, the solicitors have notified the lender of the sale; once exchnage has happened the lender can't repossess before completion.

TBeckett100 goes bankrupt before the sale completes

This nearly happened to me! Provided the property is being sold at market value (rather than discounted or between family members) the official receiver will allow the sale to proceed in the interests of the creditors.

Why aren't you taking the risk after all it's my cash!

It isn't; once you have exchanged it belongs to your sellers.

This procedure is the way that house sales proceed (England & Wales). For all the faults of the process, the events after the point of exchange do actually work.

TBeckett100

thanks, not sure I am loving my good name associated with bankruptcy, vacating property, changing my mind, falling in arrears though............

silvercar

:LOL: I did think that as I typed, but needed to follow on the thought process. Now if you had a username like mine, there would be no implication - cars go bang everyday.;)

I'm sure your deposit will be fine.:)

franklee

silvercar wrote: »

Why would anyone agree to sell their house, incur considerable expense in finding a new property. Enter a legal binding agreement and then decide not to move?

No idea why someone would want to pull out but presumably it can happen otherwise if the sale was guaranteed to go through after exchange then no deposit would be needed The deposit is there as protection for the seller if the buyer pulls out after exchange, the fact that the deposit is needed must mean there are occasions although rare when this happens!

silvercar wrote: »

Even in that unlikely scenario, the buyer's solicitor would nip into court and very speedily get a judgement ordering them to vacate the property. They have entered a legally binding agreement to sell; its not pay 10% and then think if you want to go. Tbeckett would also be liable for everyones costs.

Of course it is unlikely but why should my cash be used to protect someone else's seller? As I said if the sale is guaranteed to happen anyway then the deposit would not be needed in the first place.

Even if the courts force the sale, and there could be reasons why this isn't possible, then it will complete late affecting the whole chain meaning more than one person has a claim on the one lot of deposit money.

silvercar wrote: »

You'd get the costs back through the courts, very quickly. After all someone has just breached a legally binding agreement, there would be no defence.

It just takes one link in the chain to fail and there could be more than one person with a valid claim on the one deposit. Although the person in default would legally owe the money back it may not be available to pay back as there isn't enough cash to go round. You can't get blood out of a stone.

silvercar wrote: »

Plus all the solicitors would be agreeing the action.

They can agree all they like, if there isn't enough cash to compensate everyone then how will I get my cash back "very quickly"?

silvercar wrote: »

It isn't; once you have exchanged it belongs to your sellers.

Not if the seller defaults.

The point is if the chain fails then there are two people entitled to their money back. I would want my original 17,400 back as I did not get to buy TBeckett100's property. You would want to retain the 17,400+2,600 as TBeckett100 didn't buy your property.

Thus two of us want the 17,400 that I originally paid and TBeckett100 does not have the cash to pay both. So who gets how much?

silvercar wrote: »

This procedure is the way that house sales proceed (England & Wales). For all the faults of the process, the events after the point of exchange do actually work.

As I already said most chains complete after exchange but they are the ones where the deposit would not have been needed anyway. Surely the whole point of a deposit is to deal with the situation where things do go wrong after exchange even though that is unlikely. Otherwise what exactly is the deposit for?

In the event of it going wrong who gets the 17,400 that I originally paid? Only if you get to keep it I am 17,400 down and have to go to court to get anything which although I'm legally entitled to may not actually be given if it is not available to give.

It would seem fairer to either proceed with no deposits at all or have each link in the chain pay their own deposit to their seller. Why is the system concerned with protecting the seller with some other buyers money? After all if it's a long chain I have no control of who my deposit money gets passed on to and who knows if someone higher in the chain will come unstuck.

TBeckett100 wrote: »

thanks, not sure I am loving my good name associated with bankruptcy, vacating property, changing my mind, falling in arrears though............

Oops Sorry about that. The point is if a sale goes smoothly the deposit doesn't matter but that it comes into play when things go wrong. Surely the point is what happens to the deposit if things go wrong not the reasons why it happened which could be many and varied. I was not meaning your sale in particular or that you personally are going to pull out, I could have called the three people in the example chain man A,B and C but that's harder to follow.