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 include:
- Mortgage company withdraws their mortgage offer.
- Something untoward happens to one of the parties.
- A dispute arises regarding the property.
- One of the parties decides not to complete.
- The home burns down between exchange and completion.
- Something happens up the conveyancing chain.
- You’re made redundant.
What can go wrong between exchange and completion?
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.
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 in more detail include:
- The mortgage company of the buyer withdraws their mortgage offer between exchange and completion.
- Something untoward could happen to one of the parties between exchange and completion.
- A dispute arises regarding the property being purchased before completion.
- One of the parties to the contract decides not to complete on the contract.
- The home you’re buying burns down between exchange and completion.
- An event further up the chain-sale (or conveyancing chain) can impact the completion date even if exchange has taken place.
- You get made redundant after exchange of contracts.
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 between exchange and completion
Whilst it doesn’t happen very often, it can be that a mortgage offer given before exchange of contracts is then withdrawn once contracts have been exchanged.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 could happen to one of the parties between exchange and completion
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 before completion
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. What happens if one of the parties to the contract decides not to complete on the contract
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. Where do you stand if the home you’re buying burns down between exchange and completion
If the house you’re buying burns down between exchange and completion, you are legally obliged to still go ahead complete the sale.
As for who is responsible for the damage will be down to what’s included in the Sale Contract. The seller is contracted to look after the house and repair any damage they do to the property. The seller is also obliged to keep the property in the same condition it was when contracts were exchanged.
If the property is damaged from a fire, a flood or a storm between exchange and completion, the party who’s responsible will be down to what was agreed at the point of exchange and what’s included in the Sale Contract.
However, this isn’t particularly helpful, particularly if your new home is no longer suitable 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 current house.
This is why it’s recommended to insure the new property on the day of exchange.
6. An event further up the chain-sale (or conveyancing chain) can impact the completion date even if exchange has taken place
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.
7. You get made redundant after exchange of contracts
If you get made redundant after exchange of contracts you are obliged to inform your mortgage lender as this is a material change in financial circumstances.
But if you are told your job is at risk of redundancy this is not a change in financial circumstances as you are still employed.
If you are made redundant after contracts are exchanged you’ll need to find a new job pretty fast. Otherwise you risk losing the mortgage offer. If this happens you also risk losing your deposit and other costs associated with a failed completion.
If you are using a mortgage broker, speak to them about your situation. Take their advice as to what you need to do. But be aware that if you fail to inform your mortgage company about a material change in financial circumstances you are possibly committing mortgage fraud.
If you have received a heads-up that you job is at risk of redundancy, you should start to look for alternative job security. As although this isn’t a material change in your circumstances, if it does happen your main concern is to make sure you are able to afford your mortgage payments.
Worst case scenario you could take in a lodger to help cover the mortgage. But before you do this check your mortgage terms and conditions. You may need a consent to let to take in a lodger depending on the lender.
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.
Important reading before you leave this article:
When I thought about this problem a bit more carefully, I realised that there is one sure way to significantly reduce your risks of of what can go wrong between exchange and completion.
This is to sell your house and rent before buying again. Did you know there are 15 advantages to this strategy when you sell a house. Before you decide what to do, I recommend you take a quick read of this article before you go, which can be found here; Are you better selling your house and renting before buying again.
What can go wrong on completion day?
You’ve exchanged contracts and been excited for the day of completion. But then for whatever reason something goes wrong on the day of completion. But what can go wrong on completion day?
- There could be a problem with the transfer of funds on completion day. If the vendor’s solicitor doesn’t receive the completion funds, completion cannot happen.
- Your solicitor could be ill on the day of completion. If you use a one-man-band for a solicitor and your solicitor is sick on the day of completion, there won’t be anyone to exchange the contracts and transfer the funds.
- Your removal firm or that of the people selling the house may not turn up for what ever reason. This could be as a result of sickness of the removal firm’s staff or a broken down vehicle.
- The vendor might take certain fixtures which you thought were included in the sale. Vendors have been know to take all light fittings, light bulbs and so on. This might make your first night in your new home a bit of a challenge. You may be eating by candle light!
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