The rules and regulations differ depending on which state or territory you live in, but generally speaking if your side is responsible for a settlement delay it could cost you. Even it's for circumstances beyond your control.
A property buyer on the Gold Coast, David Christopher, recalls being charged $265 in penalty interest when buying an apartment. The cause of the delay was his bank, which was running behind on processing paperwork and simply couldn't settle on time. The seller charged penalty interest to accommodate the 1-week delay.
After finding the perfect home and having your offer accepted, you may feel relief that the house hunting is finally over. But just because you’ve signed a contract doesn’t mean that it’s a done deal. There are still plenty of problems that could arise before you actually take possession of the house.
There are several frustrating and potentially costly issues that could cause settlement to be delayed, including:
Both the buyer and seller may be relying on their lender to come through with finance or finalise a discharge of their old mortgage. Settlement can't occur until everything is sorted. Bank errors, missing paperwork and delays can happen.
"Often it is the bank that is not ready to release a mortgage because the seller may have put the release authority in late, given many sellers don’t put it in until the property goes unconditional and sometimes this only leaves 1 to 2 weeks before settlement. Some banks can turn it around in a week but others take up to 6 weeks to prepare for settlement," explains Katie Richards, a property lawyer for the online law firm Virtual Legal.
Laura Vickers, principal from Nest Legal in Northcote, Victoria, adds that "the risk of bank error is exacerbated if the purchaser or vendor themselves have been tardy in signing documents or picking up errors by the bank."
Sometimes, the buyer might discover an issue during their final inspection of the property before settlement. For example, the buyer might discover a faulty garage door hasn’t been fixed. This problem (and its rectification) could be essential to the sale of the property going through.
"The buyer may have put other requirements on the seller, such as fixing items on the house in exchange for going unconditional on building and pest, so the seller may need more time to affect the repairs," Richards says.
When a contract is dependent on the sale of another property to move forward, this can cause delays. For example, in order to be able to afford the purchase of a property, you may first have to successfully sell your current home.
During the conveyancing process, a range of important documents, including the Transfer of Land, must be submitted to the relevant government bodies. If either the buyer or seller is slow to return completed paperwork to their conveyancer, this can cause delays.
"Sellers can also delay settlement by not having moved out of the house, or not having a tenant moved out of the house where vacant possession is to be provided, and in some of these cases the relevant state authority needs to be involved to evict the tenant," Richards says.
Vickers mentions a few other less common issues that can sometimes cause a delayed settlement:
The following are some of the steps you can take to minimise the chances of settlement being delayed for any reason:
"When I bought my home there was a very tiny delay of 30 minutes. Our conveyancer called and explained that the seller's bank (a small credit union) had missed one bit of paperwork, which was quickly sorted. They explained that the electronic system for settlement worked in timed increments so we missed our scheduled window. It was really no issue at all. But I have heard buyer horror stories of sellers delaying settlement for weeks and buyers having to put everything in storage and stay with relatives until they can move in!"
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I have purchased a property recently. Settlement was due on 28th July but was actually settled on 1 August. I have defaulted for three days. Vendor has calculated interest @14 % on the balance owing for four days . Is this the corrrect calulation.
Hi Santosh,
Thanks for your comment.
The vendor is entitled to charge the purchaser interest for the number of days settlement is delayed. The exact amount will be specified in the contract and is calculated on a day-by-day basis.
You may want to speak to a mortgage broker to help you recalculate the penalty interest.
Regards,
Jhezelyn