Buying a home is called the great Australian dream as it remains one of, if not, the most significant transaction Australians will make in their lifetime. With the amount of money involved in a property purchase, it is necessary for the buyer and the seller to put into writing their agreement, making the deal legally binding and protecting them in case of disputes in the future.
In some cases, however, a property purchase can go on without a written agreement said former Coleman Greig Associate Mario Rashid-Ring.
Oral agreement for property purchases
Mr Rashid-Ring said an oral agreement would be sufficient for a buyer to claim ownership of the property, provided that the transaction meets a certain standard.
"In the case of oral or unsigned contracts for the sale of land, the agreement may be enforceable by the courts under the doctrine of part performance if a certain test is met," he said.
Mr Rashid-Ring was referring to the test developed by the English Courts in the case of Maddison vs Alderson in 1883. This landmark case made it plausible for home-purchase deals to push through without a written and signed contract provided that "an oral agreement was partly performed" and that "the acts relied upon as part performance [are] unequivocally, and in their own nature, referable to some such agreement as that alleged."
Further, Mr Rashid-Ring referred to a 2019 case filed before the New South Wales Supreme Court. Cam Vinh Phung, the plaintiff of the case, was seeking to enforce an oral agreement that he had made with his younger brother to purchase a unit for $180,000.
The NSW Supreme Court applied the test from the Maddison vs Alderson case to determine whether the oral agreement between Phung and his younger brother was valid. The court found three grounds that satisfied the test: First, Phung had taken possession of the unit. He also had carried out renovations of the target property. Phung had also paid all outgoings from the property, from rates to strata levies.
"Notably, the court formed the view that the fact that the plaintiff had paid the defendant a sum of $180,000 was not in and of itself sufficient to constitute an act of part performance. The Supreme Court held that the property had been validly transferred to the plaintiff due to part performance and made orders to that effect," Mr Rashid-Ring said.
What happens when you break a contract? This guide will help you avoid in dealing with possible repercussions of breaking a contract.
Importance of contract of sale
While an oral agreement could be enforced for the purchase of a property, Mr Rashid-Ring said it is still crucial for both the buyer and the seller to have a written contract.
"A written contract clearly sets out the respective rights and obligations of the parties and can help avoid a dispute about the enforceability of an oral contract," he said.
There are a number of items you can expect to find in a standard loan contract. In a nutshell, the document states that the lender will offer you a loan based on the terms and conditions as outlined in the document. The elements of a contract of sale are covered in more depth below.
Elements of the contract of sale
The contract of sale should detail every aspect of the transaction. While the required information included in the contract may differ in each state or territory, it should typically indicate the complete address of the property, the names of the seller and buyer, the name of the seller's agent, and the conditions of the transaction, which include terms of payments and loan details.
Furthermore, the contract should also note the initial deposit to be paid by the buyer, the total sale price of the property, the dates of offer and the property settlement, the cooling-off period, and any inclusions and exclusions as discussed by the buyer and seller.
The buyer has to ensure that the seller includes attachments relevant to the contract, such as zoning and property certificates, sewage plans, plans of the land if the property is within a subdivision, and home warranty insurance certification.
1. Borrower – All about you
It is essential you verify that all details about yourself or other borrowers on your loan contract are 100% correct. If your name(s), address(es) and borrower(s) are not stated and spelled correctly, your contract may be legally void.
The name on the mortgage documents that the lender prepares has to match the name on the transfer that the solicitor will lodge with the Land Titles Office otherwise the mortgage contract is null and void.
2. Disclosure & Offer Lapse Dates
The ‘Disclosure Date’ on your mortgage contract is simply the date that the ‘offer’ or mortgage contract was issued to you as the borrower.
The ‘Offer Lapse Date’ is set by your bank or non-bank lender and states a time period in which the offer must be signed and returned to them. If the contract is not agreed, signed and returned by this date that particular offer of mortgage contract will expire. This can be anything from around 30–40 days.
Sometimes you and your solicitor may require a longer period of time to review the contract. Your lender should be able to grant additional time or simply re-issue your contract.
3. Financial Table
The Financial Table is a part of the contract which states all fiscal details including fees and charges. Your lender can change any part of this Financial Table at any time with written notice usually of around 30 days. Although each contract will differ from lender to lender, your Financial Table should include the following:
a. Initial checks
‘Amount of Credit’: It is vital you confirm that this home loan amount is the figure that you agreed on during talks with your broker or lender. You may even wish to re-confirm the stated amount is enough to cover the cost of buying your home and that you can afford this amount.
‘Annual Percentage Rate’: This states which product you have chosen and the current interest rate at which that product includes.
'Repayments': It is easy to assume all the details of your loan contract are correct. When going over your contract make sure you check your budgets twice and ensure that the repayments stated in the offer are correct.
b. Fees and Charges
There are many costs that come part and parcel with buying a home. Some of these will be associated with your mortgage and will be disclosed in your contract under the ‘Fees and Charges’ section.
This section will initially seem quite ‘fee heavy’, although not all will be incurred.
Your solicitor will be able to confirm which of these fees are applicable to you now and later on in the term of your mortgage.
Some of these fees and charges include;
bank fees (application fee, bank cheque fee, valuation fee, loan maintenance fee)
government charges (mortgage registration fee, mortgage stamp duty, transfer duty (stamp duty) etc)
other fees and charges (any other unique fee which does not fall under bank or government fees, such as a search service fee)
bank discharge fees – only charged if you discharge the mortgage before a particular term has expired. This fee may include bank and legal costs of preparing the discharge and may begin from around $400, but will be ascertainable when the discharge happens
government discharge fees – This is payable to the bank or lender in reimbursement of Land Titles Office fees and charges if incurred by your lender
There are also fees and charges which are listed as ‘may or will become payable’ and will usually be fees associated with lender transactions and statements.
Note: you will also need to make sure you are aware of home loan portability and transfer fees if you are thinking of replacing your existing security with another or if your existing loan is to be transferred to another product – anytime within the period of your loan.
4. Purpose of the Loan
The ‘Purpose of the Loan’ simply confirms why have taken out the mortgage. This may be for an owner occupied property, an investment property, or a personal investment.
This section of the contract stipulates whether or not the lender received your business through a mortgage broker, and how much that broker was paid in commission.
6. Credit-Related Insurance Financed by this Product
If you have opted to pay for additional mortgage protection insurance it will be stated in this section. Mortgage protection insurance would cover your mortgage repayments for a length of time, if you could not work due to illness or injury.
It is important that you confirm that your security is stated correctly. The security is the home you have decided to take a mortgage out against.
8. Disbursement Instructions
The ‘Disbursement Instructions’ on your loan contract will outline who is to be paid what and when.
9. Conditions Precedent
The ‘Conditions Precedent’ outlines any outstanding elements which need to be paid before confirmation of the home loan goes ahead. This might also include:
Guarantees to provide a certain document
Building a pest inspection
Fees and Charges
10. Special Conditions
The ‘Special Conditions’ section of your contract discloses particular clauses which are relevant to your mortgage. They will be referenced to points within the standard Terms and Conditions booklet which you are given alongside your contract.
Tips for understanding your home loan contract
To ensure your head is wrapped around the concept of a home loan contract, the following tips will aim to help answer your contract questions.
Use a solicitor or conveyancer to go through the loan contract.
Use a finance broker to ensure that the most appropriate product is selected for you.
First homebuyers should complete the First Home Owner Grant application with a legal representative.
Check that your documents have your full name & address spelt correctly.
Check that the interest rate and product match what you have discussed with your broker/lender.
Read the provision of mortgage document (terms and conditions booklet) for your rights under the lending contract.
Have your insurance (buildings cover) ready – include this building insurance when handing back mortgage contract to your lender.
Don’t leave the signing of the documents until the last minute, chances are there will be an error that will need to be corrected.
Don’t get pressured into signing documents that are not right or are not the product you discussed, have them fixed first.
If in doubt ask questions & ask for translations in laymen’s terms, and keep a copy of your contract for your records.
Collections: Buying a home