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This scary new property blunder will ruin your life

Donna Ferguson
by Lovemoney Staff Donna Ferguson on 01 November 2011  |  Comments 20 comments

I thought I'd heard about every property transaction nightmare there is. But I was wrong...

This scary new property blunder will ruin your life

Imagine this. You’re in the middle of a property chain, selling your current property and buying a bigger home. The most stressful bit is over - or so you think. Everyone in the chain has found a buyer, exchanged contracts and is due to complete on the same day.

What could go wrong at this stage? Everything’s sure to go ahead once you’ve actually signed and exchanged contracts - right? After all, you’ve both committed huge amounts of money, in the form of your deposit, to the purchase. If the other party doesn’t go ahead, you each get to keep your buyer’s deposit, which is typically 10% of the total purchase price. So surely no one in their right mind would pull out at that late stage?

That’s certainly what I thought, until no less than two friends recently found themselves facing huge financial losses through no fault of their own at exactly this stage in their individual property chains.

In both cases, everything was going well, until the day before completion. Both then got a phone-call from their solicitor explaining that, for various unforeseeable reasons, their buyers were not going to be able to complete on time. This meant that neither of my friends would have enough money to complete on their own purchase in the chain.

Suddenly, my friends were in breach of contract with the parties they were buying from. In other words, they stood to lose their deposits. And remember, they were both moving up the property ladder. Their deposits - at 10% of the value of the properties they were buying -  were far bigger than the deposits their unreliable buyers had put down.

Can you imagine how they felt at that moment? Without warning, each not only stood to lose the dream home they were buying the next day.... they also stood to lose several tens of thousands of pounds!

What could you do next, if this were you? What are your rights? And most importantly, what precautionary steps can you take to ensure this never actually happens to you?

A cautionary tale

First of all, despite this cautionary tale, it’s important to note that it is very rare for British property transactions to encounter problems at the completion stage. The chairman of the National Association of Estate Agents, Peter Bolton King, told me he had only seen two transactions fail at this stage in 38 years - once was because the owner dropped dead.

Both my friends were selling flats in London to cash buyers who were willing to pay the asking price. In hindsight, perhaps this should have rung alarm bells - but how many of us would have had the strength to resist such offers? After all, cash buyers are supposed to be the easiest to deal with!

Why did these transactions go wrong?

It difficult to say with certainty why both my friends encountered problems. Perhaps they were just unlucky. But I don’t think it’s a coincidence that both of their too-good-to-be-true buyers were ‘turning over’ the properties; selling my friends’ homes onto other purchasers, before the property transactions with my friends had actually completed.

In both cases, this led to delays as the buyers struggled to get their purchases signed off between exchange and completion with my friends. In one case, my friend discovered his cash buyer was actually from Hong Kong and was trying to peddle the property at a premium to someone else in China who didn’t want to navigate the British property market and legal system himself.

Unfortunately, it looks as if this practice may start to become more common in future years. China has recently introduced a new tax disincentive to discourage its citizens from buying second or third properties at home. According to Peter Bolton King, this means many Chinese investors are looking abroad, often to the UK, for property investments. 

What happens next?

If, like my friends, you fail to pay your seller on your completion date, then the seller’s solicitor will usually serve you with a legal ‘Notice to Complete’. This will formally give you a short period of time - typically 10 working days - to get the rest of the money together or you will legally forfeit your deposit.

In one case, this enabled my friend’s buyer to come through in time. But in the other case, unfortunately, the buyer had sneakily written into his contract that if he didn’t complete on time, he had a further month to get the money together. And my friend’s lawyer didn’t spot this beforehand.

So there my friend was, with a Notice to Complete within 10 days served upon him by the person he was buying from, but unable to serve an identical Notice to Complete on his own buyer.

One option he had was to sue his lawyer for negligence but this would be hard to prove and was not a route he particularly wanted to go down. But according to the Conveyancing Association, 50% of professional indemnity insurance claims by solicitors are with regard to conveyancing cases - so clearly, mistakes do happen and it pays to be aware of this.

In the end, my friend managed to negotiate with his seller where he offered him thousands of pounds extra to go ahead with the sale, which his strongly motivated lawyer then managed to get back from his own Chinese buyer in turn, plus a bit extra to compensate my friend for his troubles.

And so the tale ends happily. Apart, of course, from all the stress....

Key ways to protect yourself

1) Hire a good lawyer - but not a family friend, someone you could sue if you had to.

2) If you are due to complete on the same day, make sure your contract with the person you are buying from is exactly the same as the contract with the person you are selling to, particularly with regard to the date the completion funds are due by.

3) If your buyer looks too good to be true, he or she probably is. Use your judgment and if you’re worried, ask your lawyer to insert clauses which protect your deposit regardless of whether the sale gets to completion.

Tell us your horror stories!

Got a similar property horror story you think tops this one? If so, please share it with other lovemoney.com readers using the comments box below!

More: These cheap mortgages won’t be around for long | Rates fall again on buy-to-let mortgages

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Comments (20)

  • oldhenry
    Love rating 343
    oldhenry said

    My tip is not to deal with overseas buyers/sellers. Try to make sure you 'know where they live' to ensure it is a genuine sale and avoid the speculators. I live in the sticks I suppose and have bought four houses in my lifetime. They have not always gone smoothly due to comnplicated chains- one where a divorced couple were arguing about the proceeds. That left me moving to my mother's house and my wife to her mother's house for a week whilst completion was finalised but my sale had been fine, the purchase went wrong there. My last house I bought beofre selling the one we were in but we were better off then and a small bridging loan from the bank fixed that for a few months.

    Report on 01 November 2011  |  Love thisLove  0 loves
  • OzBoy
    Love rating 3
    OzBoy said

    " the buyer had sneakily written into his contract that if he didn’t complete on time, he had a further month to get the money together. And my friend’s lawyer didn’t spot this beforehand" ............................"One option he had was to sue his lawyer for negligence but this would be hard to prove.................."

    Hard to prove?!!!!

    Unbelievable, this is sheer, gross negligence - failing to spot the difference between two straightforward, standard clauses.

    Surely negligence could be easily proved?

    Report on 01 November 2011  |  Love thisLove  0 loves
  • ALMAC
    Love rating 0
    ALMAC said

    This is an old scam, where a buyer, generally at the bottom of the chain, uses their potential leverage over other members of the chain to secure a further discount on the agreed sale price at completion. For a vendor caught up in this situation it is not just the potential of losing their deposit, but also the much larger potential liability for the costs of ALL the other members in the broken chain, as these costs get passed down the chain, and assuming the scammer at the bottom has no UK assets and/or is a "man of straw", it is the last person with assets that pays; a complete nightmare and personal disaster. So beware of foreign purchasers, and any purchaser who will not stump up a 10% deposit, and use a reputable solicitor who will generally ‘sniff’ out this sort of trouble prior to exchange. This happened to friends, but fortunately everybody in the chain agreed to contribute to paying off the scammer, disaster narrowly averted!

    Report on 01 November 2011  |  Love thisLove  0 loves
  • flyingramses
    Love rating 0
    flyingramses said

    Why is it that nearly every Lovemoney email these days has to include a 'Horror Story', scary new this or scary new that or yet another scare for us already strained readers?

    The above scenario is extremely unlikely to affect your typical reader along with many other of your scare stories. You not only know of one case of this extremely rare event, but two . . . at the same time . . . really?

    You guys push some great stuff generally speaking but sometimes the negative stuff you write about could be put into a depressing ITV drama!!

    And you finish by asking us to share our horror story, especially if it 'tops this one'!!!

    How about the Euro will be finished by Summer 2012, Greece will have fallen and Italy/Spain on the way, US will stagnate and end up the equivalent of a third world country. If the planet survives the rape of its resources over the next 20 years which is unlikely (just Google 'Fracking for gas' as one example) we will probably all need to learn Mandarin pretty sharpish and if you do not have a nice hoard of gold when the cash machines stop working what do you do next?

    I am emailing this right now to ITV!!!

    Report on 01 November 2011  |  Love thisLove  0 loves
  • PeterRidgers
    Love rating 0
    PeterRidgers said

    Buying houses has always posed problems. The last time I moved was over twenty years ago. We agreed to purchase one property, paid for a full structural survey and arranged a mortgage: it helped that we were using the same estate agent as the seller. We had a buyer for our house but we could not get the seller to agree a completion date. Eventually I talked to the estate agent who said "He has no intention of selling. We have arranged half a dozen surveys for him this time - he does this every year so he can keep in touch with what his house is worth." Unbelievable!

    This latest wrinkle sounds like it could the basis for a very nasty scam: collusion between both sides of your chain could end up costing a lot of money.

    Report on 01 November 2011  |  Love thisLove  0 loves
  • electricblue
    Love rating 769
    electricblue said

    Negligence by a solicitor hard to prove? I've had compensation from two and had one struck off and another severely reprimanded by the OSS. Don't let them scare you, they have a lot to lose. As far as this article goes; this isn't new, it isn't a blunder and if you have common sense and a good solicitor (I once heard a rumour that good solicitors do exist) it shouldn't worry you.

    Report on 01 November 2011  |  Love thisLove  0 loves
  • smithdom
    Love rating 33
    smithdom said

    Our conveyancing system is ripe for an overhaul. Too many things can go wrong, and it is too easy for frivolous people to waste the time and money of others.

    Once a price has been agreed, if either party pulls out without good cause then they should be liable for the other party's costs. That includes for sellers: selling to someone else, or deciding not to sell after all. For buyers, pulling out of a purchase without cause attributable to a bad survey or misrepresentation by the seller.

    All sellers should be obligated to commission a full survey appropriate to the age of their property once a sale has been agreed. The liability cover for inaccuracies in this survey should pass to any buyer on exchange of contract. The cost of the survey can be part of the negotiation between buyer & seller. This will avoid duplicated expenditure on surveys for a single building.

    The situation outlined in this article should be covered by mandatory insurance. If cases of failure to complete are as rare as indicated then the insurance should not be that expensive.

    The uncertainty over house buying & selling puts a lot of people off. Those who would like to move but are not under pressure to so can be discouraged from moving by the risk wasted time and money with failed negotiations.

    Report on 01 November 2011  |  Love thisLove  1 love
  • Donna Ferguson
    Love rating 130
    Donna Ferguson said

    @electricblue - sounds fascinating - tell us more. What happened?

    @flyingramses - fair point, it has all got a bit negative recently... I think the scary theme came from Hallowe'en perhaps but will try to take onboard what you've said. But I really do know two friends this happened to (well four actually - they were both couples). I thought the first transaction was just a one-off - heard about it a few months ago - but when it happened to another friend I thought, this is crazy, and would be worth writing about to warn others. That's how my friends saw it too!

    Report on 01 November 2011  |  Love thisLove  0 loves
  • ameslyne
    Love rating 2
    ameslyne said

    Things are done differently in Scotland. An agreement to buy is binding. The paperwork is essential, yes, but the verbal "yes, I want to buy" is binding. At least, it was when I sold my house in Scotland some years ago.

    Report on 01 November 2011  |  Love thisLove  1 love
  • suemalling
    Love rating 5
    suemalling said

    My brother and his wife had their sale fall through when the buyer pulled out between exchange and completion (allegedly because of redundancy), a few days before they were due to emigrate. Fortunately no chain, but equally stressful. Surely the best way to speed up the house purchase process and avoid sales falling through - rather than surveys, HIPs, etc - would be to radically review the legal conveyancing process and in particular to reduce or preferably eliminate that final period between exchange and completion. Any reason why the legal/financial stuff can't be finished before exchange of contracts, thereby making exchange effectively legally binding and the point of completion?

    Report on 01 November 2011  |  Love thisLove  0 loves
  • Lune
    Love rating 0
    Lune said

    Actually, failing to complete can be much much worse than described. The party in breach of contract can be held responsible for ALL the costs incurred by the counterparty and can lose more than the deposit. If you fail to complete a purchase, you can be sued for all the seller's costs which can be substantial, and may even include the difference between your offer price, and any lower price realised on a resale. This is in addition to the costs of removals, disruption, legal fees, etc etc. Although it is rare, it is not THAT rare. Mortgage offers can be pulled on a material change in circumstances such as redundancy, or a false declaration by the applicant. (The advice to reduce the period between exchange and completion is excellent) I had a seller fail to complete and he was lucky that I did not have a removals van sitting outside and still had somewhere to live otherwise I could have claimed for accommodation costs as well storage. However, as my mortgage had been released to my solicitor I was liable for the interest which I did claim for while the legal 'technicality' was sorted out. He paid, but there was no deposit my solicitor could keep draw from as the counterparty in breach was a seller. I would not wish the experience on anyone.

    Report on 01 November 2011  |  Love thisLove  0 loves
  • edwardmk2879
    Love rating 65
    edwardmk2879 said

    Excellent post by smithdom. A lot of surveyors in particular are reluctant to see serious reform which is long overdue. PeterRidgers mentions the seller who had no intention of selling. In the current system there are too many of these. If they had to pay to provide a proper survey, they might be less inclined to make frivolous offers of sale thus inducing unsuspecting buyers into wasted surveys and inevitable disappointment and associated costs. The current system is great for surveyors, Most of the surveys are massively duplicated in the case of popular properties, a good source of income for surveyors, but not much use to anyone else. I heard of a business man who purchased based on a valuation survey which missed massive structural problems. The business man sued the surveyor, the judge threw it out. Judgement was,'since you paid the valuation price, the surveyor was right', No case to answer. Is it just me? How long do honest folk have to be at the mercy of this ancient and broken system?

    Report on 01 November 2011  |  Love thisLove  0 loves
  • midasjohn
    Love rating 0
    midasjohn said

    Not only did my buyer fail to complete on completion day but he subsequently registered an interest in the property with the land registry (illegally?) because he had paid a deposit. i couldn't then resell.

    I had already bought another property on a bridging loan.

    It took 12 months to sort out and fortunately the bank supported me during this time.

    i only came out of it well because property prices went up dramatically in the year. That wouldn;t be the case in todays market.

    Report on 02 November 2011  |  Love thisLove  0 loves
  • SiGl26
    Love rating 26
    SiGl26 said

    Take a look at the system in New Zealand. Accepted offer results in a contract binding on both parties (standard form completed by estate agent), and all conveyancing must happen within 7 days... Only get-out clause is 'subject to survey' Not sure what would happen if completion failed as discussed here, but fast timescale makes it less likely

    Report on 03 November 2011  |  Love thisLove  0 loves
  • gjm
    Love rating 10
    gjm said

    The Kiwis apply some common sense to legal proceedings. The British apply flannel and obfuscation.

    The same is true of car insurance - in the UK we insure for payment for damage to someone else's property. In NZ, you insure your car, so if it is damaged you get a payout to repair it. If the other person doesn't have insurance - tough.

    Compensation culture doesn't exist. There is no 'Had an accident' ambulance chasing leeching going on - the government has a list of injuries and their 'value'. that's the payout you get. End of story.

    Sure it'l be tough for some, but it works. Over there, that is... Far too many bleeding hearts and political correctness in the UK for a change of any significance to take place.

    Report on 14 November 2011  |  Love thisLove  0 loves
  • gjm
    Love rating 10
    gjm said

    The Kiwis apply some common sense to legal proceedings. The British apply flannel and obfuscation.

    The same is true of car insurance - in the UK we insure for payment for damage to someone else's property. In NZ, you insure your car, so if it is damaged you get a payout to repair it. If the other person doesn't have insurance - tough.

    Compensation culture doesn't exist. There is no 'Had an accident' ambulance chasing leeching going on - the government has a list of injuries and their 'value'. that's the payout you get. End of story.

    Sure it'l be tough for some, but it works. Over there, that is... Far too many bleeding hearts and political correctness in the UK for a change of any significance to take place.

    Report on 14 November 2011  |  Love thisLove  0 loves
  • eLJay
    Love rating 78
    eLJay said

    Odd there used to be something called a 'Bridging Loan'. Do these no longer exist?

    Report on 14 November 2011  |  Love thisLove  0 loves
  • Wellsprungalice
    Love rating 20
    Wellsprungalice said

    I'm wondering what the relevance is of the nationality of the Chinese buyer? Are Chinese buyers more or less reliable? More or less motivated? Likely to complete? No? So why is their nationality mentioned? If they were gay, would you mention that?

    Report on 14 November 2011  |  Love thisLove  0 loves
  • Yawning
    Love rating 4
    Yawning said

    @ gim -The same is true of car insurance - in the UK we insure for payment for damage to someone else's property. In NZ, you insure your car, so if it is damaged you get a payout to repair it. If the other person doesn't have insurance - tough. Love it.. this would work perfectly.. you insure yourself - if the other person has no insurance their choice their loss.

    Report on 19 November 2011  |  Love thisLove  0 loves
  • PDB11
    Love rating 75
    PDB11 said

    My horror story hasn't happened. I hope it never will. In 2006 I bought a house next to a main road. The main road is 6 feet above the level of the garden, on top of a stone wall. I really annoyed the sellers by delaying 5 months from acceptance of offer to exchange of contracts. As far as I am concerned, I needed written (and signed) assurance from the county council that they were responsible for the wall. That's how long it took to get it.

    There could still be a horror story. Elsewhere in the county, main roads have been closed for weeks or even months while the council argues with the landowner about such things.

    @Yawning - insuring your car against damage to it, rather than third party, is fine if all you damage is the car. My biggest insurance claim included hundreds of thousands of pounds of third party medical costs - Entirely my fault, I pulled out in front of two motorcyclists, one hit the car and the other hit the debris of the first impact.

    Third party insurance is ESSENTIAL.

    Report on 21 November 2011  |  Love thisLove  0 loves

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