What are the risks between exchange and completion?
You may be wondering what can go wrong between exchange of contracts and completion? You may think you’re home and dry with your house sale, but are you?
What can go wrong between exchange and completion in less than 15 seconds…
What happens between exchange and completion and what could possibly go wrong? In England and Wales the penultimate stage of a property sale is exchange of contracts. This is the point at which both the buyer and the seller are committed to the sale and purchase. This is usually when 10% of the purchase price is paid by the buyer. At this point neither party can withdraw without having to pay damages to the other party. The final stage of a property sale is completion.
What can go wrong between exchange and completion?
Believe it or not, things can go wrong between exchange and completion. Many think that once contracts have been exchanged, that’s it their home is sold. But things can and do go wrong after exchange of contracts.
Things that can go wrong between exchange and completion include:
- The mortgage company of the buyer withdraws their mortgage offer.
- Something untoward happens to one of the parties.
- A dispute arises regarding the property being purchased.
- One of the parties to the contract decides not to complete.
- The home you’re buying burns down between exchange and completion.
- The impact on a chain-sale.
Whilst the risk of these things happening is low, let’s take a look at each of these risks. Things that can go wrong between exchange and completion in more detail.
More Reading: Can you exchange contracts without a completion date?
1. The mortgage company of the buyer withdraws their mortgage offer
Whilst it doesn’t happen very often, it can be that a mortgage offer given before exchange of contracts is withdrawn once contracts have been exchanged.
This can create real problems for a buyer if this does happen. Also, depending on what stage during exchange and completion the mortgage lender decides to withdraw their offer, it is still possible to arrange a new mortgage in time to complete.
However, if this happens closer to the completion date, this makes it less likely for a new mortgage offer to be obtained in time.
However, if the buyer is not able to meet the completion date deadline, but they are still able to get a mortgage, all be it late, they’ll still be able to complete. But there may be penalties and interest to pay for the buyer who’s mortgage offer was withdrawn, as the completion date will be late.
2. Something untoward happens to one of the parties
If something untoward happens to one of the parties between exchange and completion, this can have an impact on the completion date. For example, the death of one of the parties would create a problem.
The executor to the party who’s died cannot do anything until the estate is legally vested in the deceased’s executors and probate has been granted.
The other thing that can happen of this type is bankruptcy. Whilst this is unlikely if the person is buying, it might happen to the person who is selling. It might be the seller is going through financial difficulty, which is why they are selling.
However, if the sale doesn’t happen fast enough and bankruptcy happens before the occurs, this will create a problem for the buyers.
If either of these situations happen, the best advice is for you to speak with your solicitor and seek their professional advice.
3. A dispute arises regarding the property being purchased
This is unlikely to happen, but it’s possible that it may come to light in the period between exchange and completion that the seller hasn’t given proper answers to inquiries raise about the house.
It might be that something comes to light after exchange, that had it been known beforehand, exchange may never have happened. Or alternatively, the price for the house may have been further negotiated.
This situation could get messy. The best advice if this has happened to you is for you to speak with your solicitor and seek their professional advice.
4. One of the parties to the contract decides not to complete
This can and does happen sometimes. Buyers can and do change their mind. This is more likely if the buyer is based overseas, as they are less likely to fully understand the implications of English and Welsh law. Or they are relying on the fact that it will be harder to be sued if where they live outside of the UK.
Once more, this situation could get messy. The best advice if this has happened to you is for you to speak with your solicitor and seek their professional advice.
5. The home you’re buying burns down between exchange and completion
If the house that you’re buying burns down between exchange and completion, you still have to go ahead buy it.
As for who is responsible for the damage can be a bit of a grey area. Although the seller is contracted to look after the house and repair any damage. The seller is obliged to keep the property in the same condition it was when contracts were exchanged.
That would mean that if there is property damage, like a fire, between exchange and completion the vendors are liable.
However, this isn’t particularly helpful, as you no longer have a house to move into. But on the assumption that you are also selling and you will also have exchanged, you will have to move out of your house.
This is why it’s recommended to insure the new property on the day of exchange.
6. The impact on a chain-sale
Probably one of the worst things a failure of one person to complete in a chain is the impact it has going down the chain.
If let’s say the buyer at the top of the chain has their mortgage offer revoked by the mortgage lender, this will not only affect their immediate seller, but it will have a knock-on affect down the chain too.
This is possible one of the worst case scenarios, as everyone in the chain will find themselves in break of contract if they are not able to complete as a result of the failure of one party not completing.
If this is what’s happened to you, we may be able to help, but you’ll need to move fast to avoid penalties and interest. Please contact us if you find yourself in this type of broken house chain.
What are your options if something goes wrong between exchange and completion
A sale/purchase contract is a legally binding contract. This means therefore that there are methods of redress for the innocent party. This depends on what’s contained in the contract, butcan include penalties and interest.
However, damages are never a substitute for the transaction actually happening so you can move to your new dream home.
The other and most important consideration is the ability to claim damages or charge interest against the person in default. There’s not point in pursuing someone for damages if the person paying don’t have the assets available to pay.
For example, a first time buyer who was borrowing with a large mortgage may not have any money other than the deposit. Of course if they don’t complete, the buyer will forfeit the deposit, but the buyer may not have any other assets to claim damages against. You could therefore be throwing good money after bad if you choose to sue the buyer.
What ever the situation, claiming damages is likely to be a lengthy and potentially expensive process.
Most property transaction go through without any of problems described above. But it’s always worthwhile knowing in advance of what could go wrong.
One obvious solution to all of the above problems is to go for a simultaneous exchange and completion, i.e. to exchange and complete on the same day.
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