Law and Process Flashcards
Caveat Emptor
Let the buyer beware
- Neither party is required to disclose information to the other party unless asked to do so
- If asked they must answer honestly
- Property seller is at risk if they don’t disclose all the risks
Utmost good faith
- In effect prior to April 2013 for insurance companies
- Applicant signed a disclaimer saying all info was included and correct
- If consumer didn’t disclose key info, the insurance company could refuse all claims
New consumer insurance disclosure & representations act 2012
- Protects consumers
- Insurance companies could refuse claims based on information they hadn’t asked for
- It’s now the responsibility of the insurance company to ask the relevant questions
- They can’t reject claims if the client answered honestly
- Insurance companies can cancel policies if the information isn’t correct or partially pay if the claim as a remedy if the insured has taken reasonable care
- Insurer cannot cancel a life policy
Law of Agency
Agent can conclude contracts and act in other proceedings
Apparent Authority
When an agent acts beyond their scope
Ratification
When the principle agrees & accepts when an agent has overstepped.
If the client doesn’t ratify the agent is liable
House Buying Process Stage 1 (how much they can borrow)
- Mortgage in principle will outline: \+ How much they can borrow \+ How much they can spend on a home \+ What deposit they'll need (up to 40%) \+ What the additional fees and stamp duty will be
Estate Agents - Sole Selling Rights
- 1.5-3% of sale price as commission
- Get a fee regardless of whether they sell the house
Estate Agents - Sole Agency
- 1.5% commission
- One agent has the right to sell
- Sometimes 2 agents will split the commission
- They are guaranteed to sell the property and so the commission is less
Estate Agents - Joint Sole Agency
- Higher fee
- Usually two agents and they split commission
- No fee if they don’t find a buyer
Estate Agents - Multiple Agents
- Charge higher fee 3% roughly
- The agent that sells the property gets the fee
- Increased competition so the fee is higher
Estate Agents
- Commission usually 1.5-3% of sale price
- Values the property, advertises, negotiates & liaises with solicitor
Now offer more services inhouse - Removals
- Mortgages
- Insurance
- Surveys
- Financial Advice
- Relocation services
EU Consumer Protection Amendment (CPR)
- Protects consumers from mis-description from agents
- Clients can seek redress for firms misleading, aggressive practises.
CPR includes - Ban on unfair practises
- Rules on aggressive practises like exaggerating the level of interest to push up pricing
- CPR lists unfair practises like withholding information.
Legislation doesn’t apply to financial services or consumer credit as these are covered in MCOB
Energy Performance Certificate (EPC)
EPC includes a report on property energy usage, Co2 emissions & how to reduce Co2 emissions
- Required when building is built, marketed for sale or rented.
- Needed for all heated or cooled buildings
- If separate units, each units needs it’s own
EPC must be commissioned before a property is marketed
Marketing can commence before the certificate is received
House Buying Process Stage 2 (Private Treaty)
- Sale between buyer and seller
- Conveyancing, the legal transfer of property from the seller to buyer, this occurs when stamp duty is paid
Gazumping
Seller has accepted your offer, then accepts a higher offer.
This is not illegal, just bad practise.
Legal work - Offer of Advance
Between mortgage application & offer of advance (mortgage offer) there is a detailed underwriting process.
- Offer of Advance is an invitation to enter into an agreement, this is not the agreement.
- Offer is legally binding on the lender, not the borrower.
Can be withdrawn for the following reasons:
- False or inaccurate info has been provided
- Applicants financial situation has changes (redundant)
- Property becomes less suitable (damage/drop in value)
- Offer in principle can be offered contingent on further checks
Included in Offer of Advance
- Personal details of Applicant
- Details of property (tenure/value etc)
- Details of loan (amount, repayment method etc)
- Standard warranties (non-warranty disclaimer)
+ Lender states the reasonableness of the price, the title report & how long the offer is valid. - Specific conditions (additional security i.e. guarantor, local planning, essential work, those not party to the mortgage)
Lender provides ESIS with the offer including loan details and detailing 7-day reflection period.
- Borrower signs this document
House Buying Process Stage 2 (Exchange of Contracts)
- Arranged by solicitors
- Solicitor arranges contracts for sale, when parties sign they are exchanged
- Both are now legally obligated to complete the transaction
- At exchange a deposit is paid, usually 10%
- This is the consideration time as assets have been exchanged
- Date is set for completion, usually 28 days to allow for legal time
- Long stop date is for longer gaps to complete on things like new builds. This is conditional and a buyer can void with no charge.
- Some people exchange conditionally on searches
Auctions
- Reserve price is min price, if reserve isn’t reached the property doesn’t sell
- Buyer must have everything in place prior to the auction, incl mortgage offer & deposit
- Survey should be completed & initial legal work
- Vendor Solicitor Pack provided ahead of auction for this
- Winner of the bid pays 10% deposit on the day & exchanges
- If defects are detected after exchange the buyer will not be released unless it was because of deception by the the vendor
- If property is not in good condition, lender may place a retention of funds until the work is carried out
- If the buyer pulls out, they will lose their deposit and may be required to pay back losses if the vendor sells at a lower price.
Auctions - Vendor Solicitor Pack
Includes
- Memorandum of sale
- Local & Land Searches
- Special condition of sale
- Proof of title & lease
Auction buyer considerations
- Large initial outlays
- Property may require remedial work
- Loss of 10% deposit if they pull out
- Uncertain whether the bid will be a success
Modern Method of Auction
- Held online, similar to Ebay
- Pay 5% reservation fee
- Reservation fee is just an auction fee and doesn’t go toward the cost of the house
- Buyer has 28 days to exchange and 28 days to complete
- Reservation fee is only refunded if the vendor defaults. If the buyer pulls out, they lose it.
Conveyancing
- Legal transfer of property or land
- Carried out by solicitor or conveyancer
Conveyancer
- Can only deal with property transfer
- Required 2 yrs practical training and a further 3 yrs experience to be licensed
Solicitor Conveyancing Process
Solicitors can deal with property & other matters
- Deals with all financial aspects incl stamp duty
- Solicitor checks title to verify any encumbrances and make sure the seller has the right to sell
Encumbrances - burden of claim on the property like another mortgage.
- Checks relevant registers to ensure good root of title (certificate of title)
- Confirms all checks are satisfactory with a report
- Report confirms borrowers name and search results
- Defects of title need indemnity insurance to protect lenders security
- Solicitor needs professional indemnity to protect against litigation for negligence.
House Buying Timeline
- Calculate Budget
- Find Property
- Offer of Advance
- Assessment of Security
- Searches
- Sellers property information incl in sale
- Sellers information pack
- Prepare the mortgage deed - legal contract
- Draft sales contract - Vendors Solicitor preps
- Exchange of contract - point of no return
- Before completion
+ Vendor Solicitor Settlement Figure
+ Mortgage deed signed 2 days before - Draft transfer deed
- Completion
- Balance is paid by BACS transfer
After completion - Solicitor pays SDLT within 30 days
- Solicitor applies for registration of new owner at land registry
- Solicitor sends bill to buyer for services and dispersements (fees they have paid on the buyers behalf)
- Life policies
Searches
- Land registry search \+ Charges \+ Proprietorship - Land charges register \+ Spousal \+ Puisne - Local land charges registry search - Enquiries to local authority \+ Both for obligations/restrictions and road changes - Bankruptcy search \+ Lenders solicitor on buyer - Commons registration search \+ To check land is not common land
Sellers Information Pack
- Provided before exchange of contracts * completed by vendor
Includes… - Property boundaries
- Disputes with neighbours - even if resolved
- Notices effecting property
- Guarantees on boilers etc
- Services (all utilities)
- Joint responsibilities like maintenance
- Arrangements and rights
- Changes to property
+ To prove planning permission
+ If planning permission is not granted, they need to seek it retrospectively - Planning or building control issues
- Anything else to do with the mechanics of the sale
Vendor must answer all questions honestly or be held liable.
