Borrower goes unconditional on a house purchase without finance confirmed

Hemi had separated from his partner in difficult circumstances and wanted to move out of the family home quickly. Hemi and his former partner owned 3 properties together and Hemi owned one on his own. Hemi earned a comfortable income. Through a real estate agent, Hemi met a mortgage adviser who reassured him that finance to buy a new home would not be a problem.

A couple of weeks after meeting the adviser, Hemi found a house he wanted to buy. The adviser secured an unconditional loan offer from a lender. After reading the builder’s report Hemi decided not to proceed with the purchase.

Hemi then found another house and signed another sale and purchase agreement, conditional on finance and a satisfactory builder’s report. Hemi went back to the adviser, who approached the same lender again.

The adviser emailed Hemi, with the subject line “finance confirmed”. Attached to the email was the lender’s conditional approval letter. The lender’s letter made it clear that their offer was conditional on a satisfactory builder’s report. In the correspondence between Hemi and the adviser, the adviser advised Hemi to discuss the finance offer with his lawyer.

Hemi was satisfied with the builder’s report and told his lawyer that she could confirm the offer was now unconditional. The next day the lender told the adviser that they were not satisfied with the builder’s report and would not lend. Hemi said that he would ask the builder to clarify some of the lender’s concerns but had no choice but to pay the deposit for the new property that day.

The lender reviewed the additional information, but their concerns about the property remained and they were not prepared to lend.

The adviser then started working with Hemi to find another lender. Hemi and his partner hoped to sell a property they owned together, which would mean Hemi’s existing bank would be prepared to finance the new purchase. Unfortunately, that property was passed in at auction.

As the settlement date approached, Hemi still did not have finance and agreed to pay the vendors $2,500 to extend the settlement date.

The adviser then approached a commercial lender who agreed to lend, but only to a company or a trust. Settlement date was only weeks away now, and Hemi needed to set up a company or a trust to complete the purchase. Hemi’s lawyer said there was insufficient time to arrange a trust, but fortunately Hemi had a company he could use.

The adviser then came back to Hemi with the lender’s offer. The lender would approve the loan on an interest only basis for six months, giving Hemi and his partner time to sell property, provided Hemi could show he had $50,000 set aside for the interest only payments. Hemi did not have access to this amount and needed to borrow from his daughter’s trust account. Although this was stressful for Hemi, he was able to raise the necessary $50,000. The loan was approved allowing Hemi to buy the property.

About six months later Hemi contacted the adviser complaining that the subject line “finance approved” led him to confirm the sale and purchase agreement conditions had been met, committing him to buy the property. Hemi said that as a result of this poor advice he had incurred additional costs of $92,000 and significant stress and inconvenience. When Hemi and the adviser were unable to resolve the complaint, Hemi complained to FSCL.

Dispute

Hemi said that when he read the subject line “finance confirmed” he assumed the finance offer was unconditional and did not read the lender’s letter offering finance. Hemi was satisfied with the builder’s report, so confirmed with his lawyer that the finance had been approved. Hemi said he relied on the adviser’s advice that finance was confirmed and had incurred additional costs and stress as a result.

Hemi also complained that the adviser:

  • left him hanging after the finance fell through
  • came back days before settlement with an offer that required him to set up a company or a trust, which would be impossible
  • did not tell him until the last minute that the lender needed him to have an additional $50,000 to cover the interest only payments
  • gave insufficient warning that the lender required a separation agreement, which incurred additional legal costs.

To resolve the complaint, Hemi wanted compensation of $92,000, comprised as follows:

  • $2,500 paid to the vendors for extending the settlement date
  • $2,000 for additional valuation reports required by the lender
  • $50,000 to repay his daughter’s trust fund
  • $28,000 for additional legal fees
  • $10,000 for the adviser’s brokerage fee.

The adviser agreed that the subject line, read on its own, could be confusing. However, the adviser sent the email to both Hemi and his lawyer. The lender’s offer, attached to the email, clearly stated that their offer was conditional on the builder’s report.

The adviser noted that Hemi paid the deposit for the property after he learned that he did not have finance and had made no attempt to withdraw from the purchase. This suggested to the adviser that Hemi had his heart set on the property and was confident that he and his former partner would be able to sell their properties enabling him to buy the property without needing finance.

The adviser did not accept that he left Hemi hanging after the finance fell through. The adviser provided emails showing frequent contact between him and Hemi.

It was only after a property was passed in at auction that it became clear that lending with a commercial lender was Hemi’s only option. The adviser said he worked hard to secure this finance and, although there was a short timeframe to arrange the trust or company, the adviser did not accept this was impossible. The adviser also referred to a much earlier email in which he had flagged this as a possibility if the bank declined to lend.

The adviser explained that the commercial lender also required proof that Hemi had enough money to cover the interest only payments for six months.

Review

We acknowledged that Hemi had been through an extremely difficult and stressful time. He was under significant emotional pressure to find a new home and it appeared that he might not have taken his usual care when reviewing his options. It was our view that the subject line ‘finance confirmed’ in the email was misleading when read on its own, but we considered there was enough information available for Hemi to know that the lender’s finance offer was conditional on the lender accepting the builder’s report. We considered the adviser’s contribution to Hemi’s decision to confirm the finance condition was minimal.

When Hemi told his lawyer the finance conditions had been satisfied, he set in motion a chain of events that led to the lender’s finance offer, and all the additional stress, conditions, and costs that went with the offer. From all the information available, we were satisfied that the adviser worked hard to find this alternative for Hemi within a tight timeframe. We did not think it fair to hold the adviser responsible for these additional costs and that Hemi should discontinue his complaint.

Resolution

Hemi did not accept out preliminary view and made further submissions. We considered Hemi’s response and issued a final decision confirming our view that the adviser was not responsible for Hemi’s additional costs and stress.

Insights for consumers

Take care to read all the information your financial adviser gives you before confirming your lender has made an unconditional offer of finance. We also encourage you to check with your lawyer that you have correctly understood information from your financial adviser.

Insights for participants

Take care with your communications. In this case, if the subject line in the adviser’s email had not mistakenly said that finance was confirmed, Hemi would not have had any grounds to complain.