Sometimes things don’t go well, especially when you buy or sell property. If you have signed a contract to sell your property but it has not been resolved, you may find yourself wanting to access your deposit ahead of time. Your reasons for this may be because you want to buy a new home or make an investment, for example.
When you sell a property, the buyer usually pays a deposit when agreeing to buy the property. This deposit is usually 10% of the purchase price and is usually handled by a property lawyer, conveyancer, or real estate agent. This process is designed to protect the buyer and seller. If the sale does not continue the seller may be allowed to keep the deposit in certain circumstances. If the sale proceeds, the deposit is usually paid to the seller on the day of settlement, such as real estate agent fees.
Usually, the seller does not have access to the deposit until the property has settled. But if you want to make your deposit before you pay there are rules for selling property that can allow you to access the deposit. This includes completing a Section 27 statement.
What is a Section 27 statement?
The Section 27 statement is also called the Early Release of Deposit Authority in Victoria. Under Section 27 of the Land Sales Act 1962 a seller may request that his deposit be released prior to payment. There are additional documents that you will need to complete for the Section 27 process. Although there is no automatic guarantee that you will be able to access your deposit, Section 27 provides you with a process where you can ask the purchaser to allow you to have the deposit early.
In the Early Release of Deposit Authority, both the seller and the buyer must agree to release the deposit. The buyer may agree to do this if they believe it is safe for them. After all, if the property is not yet settled there is always the possibility that the transaction may not proceed.
What should Article 27 include?
Section 27 is a written request from the seller to the buyer asking them to release the money before payment. It should include some information from the seller about their loan and title. This information should help the buyer decide whether it is safe to release the deposit in advance and it must be true otherwise the buyer may be entitled to terminate the contract. This information may include:
- Details of any mortgage
- Details of any other items that may affect the property
- Letter from the bank confirming the information in Section 27
- The buyer may object to Section 27. The most common issues raised are whether the seller needs a deposit to clear the mortgage on the property. If the seller does not have sufficient funds for the property and they require a deposit to release the collateral, it does not appear that the buyer may approve the early release of the deposit. The seller may ask his bank for a letter or request for a discharge addresses issues raised by the buyer. Typically, banks take up to two weeks to provide the required documents and some may not be willing to do so at all. This means that the seller may not be able to release his deposit in advance.
When is it safe to allow early deposit?
While there is no guarantee that the deposit will be paid in advance, the deposit can be released if the buyer believes it is safe. The buyer may think it is safe to make a deposit if the following are achieved:
- The contract of sale does not have a condition that guarantees the benefit of the buyer. This means that the contract cannot cover any remaining terms of the buyer’s benefit as a loan concession clause.
- There are no obstacles to conveying the title as a caveat registered in the title.
- The buyer has accepted the title of the property.
- The seller has given the buyer written notice from his bank or lender for any amount withheld over the property.
- The buyer is satisfied that there is enough equity to make a mortgage (a loan amount of 80% or less is generally considered satisfactory under the contract).
- The Buyer is happy with the information provided in the Section 27 statement
- The buyer has given the seller notice in writing that they agree to an early release of deposit.
- The trustee holder can release the deposit to the seller if both the seller and the buyer sign the Early Release of Deposit Authority.
How long will it take to release the deposit?
Completing the Section 27 statement and obtaining a prepaid release of your deposit may take some time. The buyer has 28 days from the date of receipt of the Section 27 statement to agree or disagree with it. If they agree, they can sign Section 27 immediately and the deposit can be released very quickly.
If the buyer does not agree he or she will have to give his or her reasons. The seller may try to address these issues and cause the buyer to change his mind, or he may not be able to access his deposit until the property has settled. This can take time, especially if the seller returns to his bank or lend money to get more documents or details.
If the buyer does not respond to section 27 within 28 days, the seller may have access to his deposit. This is because the law states that if the buyer does not agree or disagree then it is assumed that they have agreed to the early release of the deposit.
While the Section 27 process may seem complicated, it is designed to protect both buyer and seller. There is no guarantee that you will have access to your deposit so you should not rely on it. But if you want to get your deposit in advance it is a good idea to talk to your lawyer or conveyancer to make sure you have completed all the paperwork properly to give you a good chance of getting a deal from the buyer.
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