Settlement day

It’s D-day and the payoff for all your hard work as a buyer or seller is about to be realised.

So let’s take a look at what happens come settlement.

There’s nothing quite like the sweaty-palmed anticipation of settlement day.

Depending on which side you sit, dusk will either bring a big cheque or a whole new set of companions on the key ring.

The behind-the-scenes of what actually happens between the start and the finish of the settlement process is normally reserved for the attendees, but it’s not a closed-door society, as API found out.

Peter Mericka, a property lawyer with Lawyers Conveyancing, says a smooth exchange can be conducted in minutes.

“The bank will have the cheques and they’ll splay the cheques out on the table, the (seller’s) representatives will have the transfer of land and goods statement and put that on the table, the (buyer’s representative) may have a couple of cheques to make up the balance that’s required.

“The parties will then tick of fall of the things that they’re expected to collect and once they’ve checked them all off and it’s all found to be in order, they all look at each other and say ‘Are you happy?

You happy? I’m happy. Ok, done!”

THE ATTENDEES

In many cases, a lawyer completes conveyancing, although specialist conveyancing firms do exist without a solicitor at the helm.

Tim O’Dwyer is a consultant solicitor at Mitchells Solicitors and Business Advisors. 

He says the role of the seller’s or as they’re described legally, ‘vendor’s’, representative is to ensure the property is handed over in a condition that meets contractual requirements.

“If vacant possession is to be given, the vendor’s solicitor will ensure that the vendor or any tenants have vacated by the settlement time,” O’Dwyer explains.

“The solicitor will also ensure that any vendor’s mortgagee is ready to be paid out and to release any title and mortgage documents.

Finally, they’ll ensure that settlement proceeds only when the correct adjusted (for rates etc.) balance of purchase monies is paid.”

For the buyer’s legal representative, the day requires them to make sure there are adequate funds to complete the purchase, and that all documents are in order so their client will hold legal title.

“The purchaser’s solicitor will ensure that the precise adjusted settlement sum – usually made up of a number of cheques as requested by the vendor’s representatives – will be available and provided by the purchaser and/or any lender.  The purchaser’s representative must check that all documentation from the vendor and any mortgagee is correct.”

For the representatives from the various financial institutions, it’s all about getting the money together and releasing security so the property can pass to the new owner free of its previous mortgage.

“The purchaser’s financier will need to check all documentation before handing over any money, while the vendor’s mortgagee will check that the cheques are correct before releasing its security.”

TIME AND PLACE

Most settlements occur later in the day, which frees up the morning for the buyer’s people to undertake a final check of their title search, O’Dwyer says.

This also give sellers an opportunity to ensure the property is fully prepared for the new owners. 

As for the settlement location, Mericka says that’s determined by the title.

It’s at a place nominated by the person who holds the title. 

So, if it’s the mortgage who holds the title, it’ll be at their office, or if it were a clear title, we would have settlement at our office it we hold the title.

“If it’s a one of the big banks where there’s all sorts of people attending settlement at the same time, it’s like seagulls at a beach at lunchtime.

People are calling out ‘Who’s here for the Jones matter?’ or ‘Who’s here for the Smith matter?’ or whatever.

Mericka says there’s even an old-school solution when the parties are some distance from each other.

“Sometimes settlement is done by post… we might post the documents or cheques to them and they’ll post the registerable documents back.”

SHOW ME THE MONEY

Making sure the money goes where it’s supposed to is an important step. 

If stamp duty is overpaid or someone finds his or her bank balance doesn’t match up to expectation, an uncomfortable conversation will follow.

This dishing out of the dough is referred to as ‘adjustments’.

Adjustments are made to the purchase price for outstanding rates, water charges, body corporate or strata fees, and any land tax charges relating to the property.

“It’s drawn up by the purchaser’s legal representative and then it’s sent to the vendor’s legal representative so it can be checked and confirmed, and then both parties work off that,” Mericka says.

As for the large cheque, you gave to the agent as a deposit, that’s dealt with separately.

“We say to the vendor client ‘You have nominated the estate agent to hold the deposit in trust, so the estate agent is accountable to you’.

So, when it changes its character from trust monies to your money as at the moment of settlement, then you’re entitled to deduct the commission from that deposit and then they deliver a cheque to the vendor with an account setting out the sales commission, GST and what have you.”

YOUR RESPONSIBILITIES

Your name is on the contracts as either a buyer or seller so, in the end, you’re liable for ensuring you abide by its terms and fulfil your responsibilities in accordance with the document.

The seller’s duties are to ensure the rates and so on have been adjusted, and they have used the property appropriately up until settlement. 

This means it must be in a condition that’s no better or worse than when the contract was signed.

That said, the buyer should still insure the property by 5pm of the next working day after the contract is signed.

Sellers must make sure anything that’s not considered a fitting or fixture of the dwelling is removed.

Chattels left on the property will be deemed as abandoned and the seller will almost certainly be responsible for the cost of their removal.

The buyer’s responsibility is simply to pay the seller what’s due to them at the right time and have satisfied all of their lender’s requirements.

That means finance must be in order.

WHAT COULD GO WRONG?

It all sounds a bit ho-hum, right?  Well the best-laid plans can still go wonky.

“Murphy’s Law is always lurking in the background,” O’Dwyer says.

He notes in any transaction where time is of the essence, if there’s a default by one of the parties in payment, possession or documentation, they can be in breach of the contract regardless of whether the fault lies with them, their bank or their solicitor.

The result?

“The contract may be terminated forthwith by the other party, whereupon all hell breaks loose,” says O’Dwyer. 

Options for making good on any problems are available at settlement, according to O’Dwyer.

He says it’s an extreme case where settlement is called off.

“Occasionally an agreed sum is held back by the purchaser in these circumstances, or compensation is allowed for on settlement.

Most purchasers settle and sort it out later with the monies held.”

Only a really serious issue will entitle a purchaser not to settle.

Most parties to a contract are on tenterhooks, expecting news at any minute. 

Fortunately, relief is just a phone call away, O’Dwyer says.

“The parties’ solicitors will advise their respective clients very soon after settlement has taken place. Funds are available for all intents and purposes immediately because bank cheques are invariably used.

“Keys may be handed over at settlement, but often will be held by the selling agent for release to the purchaser as soon as possible after settlement.”

Unless you’re one of the brave few who’ve decided to take a very hands-on approach to the conveyancing process, then settlement day is a waiting game.

O’Dwyer’s advice is ask lots of questions well before the big day about how it will proceed and what your responsibilities are before, during and after.

“Heed the advice of your solicitor or conveyancer.”

It’s also one of the most enjoyable days on any property trader’s calendar as you see the result of your hard yards.

Prepare the glasses and break open the bubbly.

Online settlement is coming

An online platform being implemented throughout Australia is set to take property transactions electronic. 

Property Exchange Australia (PEXA) is looking to make physical attendance at property settlements and mortgage registrations a thing of the past, according to its developer National e-Conveyancing Development Limited.

PEXA supports the exchange of property through the ability to perform lodgements and property settlements online in a simple transaction.

This includes new mortgages, mortgage discharges, transfer of ownership, settlement, caveats and notices via a single online platform.

The platform is being released in two stages, with stage one allowing single-party transactions such as mortgage releases.

Stage two will facilitate more comprehensive transactions such as transfers and settlement.  

Geoffrey Adam, chief executive officer of the Australian Institute of Conveyancers (South Australia Division), says to ensure its take up by the industry, the platform will need to be robust.

“Conveyancers tend to be conservative people so I think they’ll need to be comfortable before most of them leap into electronic conveyancing,” he says.

That aside, Adam says online conveyancing is inevitable in today’s environment.

‘I’m reasonably relaxed about it.

There are some different risks and I don’t think overall it will be a bad thing.

“We have to move forward and technology is going to drive this.”

The system’s rollout is on schedule to be implemented in full throughout Australia by late 2015.

This article was written by Kieren Clair and was originally published by Australian Property Investor Magazine and has been republished with their permission