Timelines in Loan Approvals and Revaluation of Security by Lenders
The Conveyancing Committee would like to remind practitioners, when acting for borrowers, of the importance of checking certain matters in a timely fashion, including the following:
- Many letters of loan offer will set down time limits for various matters, and the banks reserve the right to withdraw loan approval or an offer of loan if these time limits are not met. Solicitors should carefully check for any time limits in loan approvals, for example, time limits within which the letter of offer must be accepted, time limits within which drawdown must occur, etc. This is to ensure that solicitors and borrowers are both aware of the relevant time limits.
- In recent times, the committee has been advised by practitioners that, in some cases where loan approval has been granted but the loan funds have not yet been drawn down, some lending institutions are revaluing properties to be offered as security. It appears that, in cases where the value of the property to be offered as security is perceived to have fallen since the grant of loan approval, either the approval is being withdrawn by the lending institution or is being adjusted downward.
A potential borrower may have entered into a binding contract to buy the property on the strength of the original loan approval, and, as a result of a withdrawal or reduction in the amount of the loan approved, may find that the purchase cannot be completed, resulting in the potential loss to the borrower of any contract deposit paid and the possibility of an action for specific performance and/or damages for breach of contract.
Solicitors are advised to warn purchaser clients of the possibility that this may occur. In the event of withdrawal of loan approval, a client should be advised of the option of making a complaint to the Ombudsman for Financial Institutions and/or to the Financial Regulator.
The committee recommends that solicitors acting for purchasers where a loan is required in order to complete the purchase transaction insert a special condition (or amend their usual form of special condition regarding loan approval) to provide that the contract and the completion thereof is subject to the purchaser’s loan approval being in place at the date of completion in a sum sufficient to allow the purchaser complete the contract.
A sample special condition is set out below:
This contract shall be subject to the purchaser obtaining approval for a loan of €________ from (lender) ___________________ on the security of the premises PROVIDED ALWAYS that if this loan has not been approved in writing within four weeks from the date hereof either party shall be entitled to rescind this contract and in such event the purchaser shall be refunded his deposit without interest costs or compensation thereon.
If the loan approval is conditional on a survey satisfactory to the lending institution or a mortgage protection or a life insurance policy being taken out or the lending institution being satisfied at any time prior to drawdown of the loan that its valuation of the property has not changed since the date of loan approval or some other condition compliance with which is not within the control of the purchaser, the loan shall not be deemed to be approved until the purchaser is in a position to accept and draw down the loan on terms which are within his reasonable power or procurement.