Article by Patrick Lynch, Head of Operations
Congrats! You found your new home, with finance approved and loan documents signed. You’re almost there… all that is left is settlement. This is the final part of the process and many borrowers, even those on their 3rd or 4th purchase, can find it mystifying.
Settlement can seem complicated, as it involves the coordination of many parties including the Broker, Lender, and Solicitors/ Conveyancers. But how and what happens?
What is Settlement?
Settlement is when ownership of the property officially transfers from the Vendor to the Purchaser. There can be many parties to settlement, including:
- Vendor – the owner and seller of the property.
- Selling Agent – the estate agent who sold the property on behalf of the Vendor.
- Vendor Solicitor or Conveyancer – look after the legal transfer for the seller.
- Purchaser – the buyer of the property.
- Purchaser Solicitor or Conveyancer – look after the legal transfer for the buyer.
- Broker – who arranges the loan for the purchase.
- Bank/ Lender – who provide the loan for the purchase.
- Bank/ Lender legal representative – who act for the Lender, if not completed in-house
- Land Titles Office/ State Revenue Office – government bodies who complete the transfer, including any taxes or Stamp Duty
All relevant parties combine to achieve settlement on a date agreed when the Contract of Sale is signed. In prior years, they would be in the same room, passing documents, cheques, keys, etc. Not anymore; now everything is mostly done electronically via PEXA (Property Exchange Australia), which assists members – such as Solicitors, Conveyancers and Financial Institutions – to lodge documents with Land Registries and complete financial settlements electronically, including payment of stamp duty, rates, adjustments and fees.
What does a Conveyancer/ Solicitor do?
Conveyancing is the legal transfer of property ownership from Vendor to Purchaser. A Conveyancer acts as your legal representative in the transaction.
When buying a property, try to have a Conveyancer (or property solicitor) review your Contract of Sale prior to signing, as they can explain to what you are agreeing. Whilst Contracts of Sale tend to be uniform, each property may be different, and a conveyancer can complete a title search to check.
Amongst the tasks that these settlement agents complete are:
- Research and investigation of the property title (e.g. prior ownership, caveats, etc.).
- Preparation and lodgement of legal documentation (e.g. contract of sale) for the purchase.
- Coordination with the Vendor’s representatives to make settlement arrangements.
- Liaising with your Broker and Lender to ensure sufficient funds are in place for settlement.
- Calculation of duties, registering of mortgage and contacting Council to affect change of owner.
Your conveyancer will keep you updated as the process progresses, including any actions you need to complete, until finally they confirm settlement has been completed. If you’ve bought a new home (or investment property), this is when you can attend the Selling Agent’s office to pick up the keys.
For a multi-media experience, you can listen to a podcast we recorded last year with Kiani Mills of KLM Conveyancing, where she explains what a conveyancer is. Click here to go to our website and listen.
What if…?
The settlement process has been refined to be as smooth as possible; everyone knows their part. But sometimes things go awry, even with the best preparation, and delays can happen for reasons like.
- Vendor issues: There is an existing mortgage on the property, but the Vendor or their settlement agents hasn’t provided enough notice to the Lender to prepare for the discharge.
- Property problems: It is generally recommended that a Purchaser complete a final inspection, to identify and raise any concerns a few days prior to settlement (e.g. the condition of the property has deteriorated, or Vendor actions agreed in the Contract haven’t been completed).
- Loan approval and documents:It is important that you, as Purchaser, complete all documentation and pre-settlement conditions in a timely manner. This can include arranging insurance, ensuring funds to complete are available, etc.
It should be noted that delays to purchase settlements, where they are considered the fault of the Purchaser or their support team (including their settlement agents, Lender, etc.), can attract significant financial penalties charged by the Vendor. This is covered in the Contract of Sale.
So how do you avoid delays, costs, etc.?
- Be timely – a good Broker and Conveyancer will communicate regularly, keeping you updated and letting you know any actions you need to complete. Delays at the start of the lending process can feed through to settlement, with the rush causing errors and necessitating avoidable escalations.
- Be informed – Buying a property is a major life event; don’t be afraid to ask questions where you are unsure what is happening with settlement. Your team, be it the Broker or Conveyancer, is there to help and have experienced most scenarios.
Refinance Settlement
The above is for property purchases. In a refinance, where an existing debt is moving from one Lender to the other, there is one new document – a Discharge Authority – where the Borrower telling the existing Lender that a new Lender will be taking over the loan.
This will have the Borrower’s details as well as loan accounts, property security and the incoming Lender (and/ or their legal representatives) and the Broker.
In a refinance, the existing Lender agrees to release their charge (mortgage) over the property on receipt of enough funds (payout figure) from the new Lender to clear the existing debt, including accrued interest, discharge and legal fees, etc. Once the transaction is complete, the new Lender takes out their mortgage on the property and the new loan is established.
If you ever sell a property, the Discharge Authority will include details of your legal representative, rather than any new Lender, letting the existing Lender know the loan will be cleared from the sale proceeds. This should be sent to the existing Bank ideally 4 weeks before settlement, as some Lenders take a long time to prepare themselves to be repaid and delays can be troublesome.
Conclusion
Getting a loan isn’t straightforward, and buying property isn’t for everyone. But for those who want to own their own home (or an investment), it is crucial to have the right team, such as your solicitor/ conveyancer and mortgage Broker, supporting you and managing the settlement process.
Long Property blog content provides general information only and has been prepared without taking into account your objectives, financial situation or needs. We recommend that you consider whether it is appropriate for your circumstances and your full financial situation will need to be reviewed prior to acceptance of any offer or product. Nothing on the Long Property website constitutes legal, tax or financial advice and you should always seek professional advice in relation to your individual circumstances.
