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Jul 15, 2014

21 Or 28 Day Settlement Periods – What’s It Matter?

It matters if settlement is likely to be delayed, because a week’s penalty interest for the median house in Kalgoorlie is now approaching $100 a day (ie min $400).

By settlement period, we of course mean the period from when finance is approved until settlement (ie not the total time from acceptance of the offer until settlement).

It mainly matters to buyers, because it’s mainly buyers that delay settlements, or their banks actually, largely because they have more at risk and hence, more documents that can contain mistakes that are not picked up until the fully executed documents are forensically examined by the bank at the end of the process.

But it can also affect sellers quite badly too, especially if they have a mortgage from a low doc loan originator who tend not to have the back-office capabilities of the big banks and hence take longer to be ready for settlement.

If the seller is overseas or in a remote location, a 21 day settlement is generally impossible to achieve.

The other thing that brings sellers undone is “partial discharges.” This is where the seller has more than one property securing a loan, which often means banks have to get a valuation of the other property (or properties) to ensure their loan to valuation ratio (LVR) remains within acceptable limits.

But the point is that penalty interest is paid by buyers or sellers irrespective as to whether they or their banks have caused the delay. It is true that you might be able to get the bank to cough up for the penalties if they’ve caused the delay, but sometimes that’s a big ask.

So what to do? 28 day settlement period unless it is an entirely routine settlement with both parties either here in the Goldfields or in Perth and with the Commonwealth Bank, Westpac, NAB, ANZ, Bankwest or Goldfields Money. Buyers using Keystart should even consider longer (35 or 42 day) settlement periods. Likewise, sellers who are are overseas, should insist on 35 or 42 day settlement periods.

DISCLAIMER: The above advice is intended to provide a summary and is not intended to be relied on in any particular case. It should NOT be construed as legal advice. For detailed advice specific to your circumstances you should seek specific advice from an appropriately qualified professional.

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