28 May 2020

Covid-19: House buyers now in financial strife risk losing deposits

8:54 am on 28 May 2020

By Eva Corlett, Housing Reporter

Property developers and sellers are being urged to find a fair solution if a buyer suddenly finds themselves in financial hardship because of Covid-19.

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File image. Photo: 123rf

Legally, the developer or vendor can keep the buyers deposit on a property if they can't complete an unconditional purchase agreement, but those working in the industry say other options should be considered first.

A buyer, who RNZ will call Jim, has been saving for a house for 5 years.

In September last year, he withdrew his KiwiSaver and put a deposit on an off-the-plan KiwiBuild apartment in Northcote.

His contract is unconditional, meaning he is legally bound to settle up the balance.

Jim was all ready to occupy in August, but then, he was made redundant.

"My first thoughts once my role was disestablished was that I need to get a job ASAP. If I don't get another job, then I'll lose my pre-approval and I won't be able to settle."

Ideally, Jim would like to keep his new home.

But if his pre-approval for a mortgage is taken away because he lost his job, he risks losing the property and his deposit that has taken years to build up.

"That dashes my hopes.

"If they refunded my deposit knowing they then could resell the apartment, I could use that money in the future to put towards another property

"But if they kept the deposit, I would have to start saving it all over again, I would be looking at 5 years, if I get a job in foreseeable future, which isn't guaranteed. I would probably be precluded from entering the property market."

Jim said he would like to see a commitment from the government that KiwiBuild buyers won't lose out during this time, adding that it would undermine the intention of the scheme.

But Kainga Ora, which administers KiwiBuild, said the relationship is between the buyer and the developer and KiwiBuild is not a party to the contract.

'Find a solution'

Director of the development company NZ Living Northcote Limited, Shane Brealey, said there should be a fair solution.

"We don't want to pull the rug out from under them," he said.

"We would try to work with them to find a solution.

"There is a whole range of potential solutions we could look at - one could be to introduce them to other mortgage providers, mortgage brokers and solve it that way, assuming they want to keep the property.

"The second would be to look at onselling the property, and ideally leave everyone whole, and return the deposit."

The chair of the Law Society's property section Duncan Terris said he is aware of some would-be buyers now in a tight spot.

There are options available to the parties and the first thing a buyer should do is talk to their lawyer, he said.

"I have a great deal of sympathy for the plight of people in that position. Obviously, it's been brought about by conditions unanticipated and beyond their control."

He said it comes down to what type of contract there is and whether the property is unconditional.

"It's going to be tough for these people."

He recommended getting in touch with the vendor to negotiate what options there are, in the first instance.

"See where you get with that, and if you cannot, see if you can defer the settlement or get an onsale, even if it's at a loss."

The Real Estate Authority acting chief executive Phirak Appleton said there is no special clause to deal with an unprecedented situation such as Covid-19.

That means parties are going to have to play nice, she said.

"We would encourage the parties to work alongside each other to negotiate a position that works for everyone, because it is an unprecedented time," Appleton said.

"One that works to not greatly disadvantage one party over the another is an ideal situation."

The Ministry of Justice, with the help of the Law Society and the Real Estate Authority has issued guidance around what happens if someone is unable to settle their agreement.

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