Purchasers who are borrowing to make their purchase should take care to avoid unfair mortgagee costs. These are cost generated by the lender “behind the back” of the borrower, through direct contact with the borrower’s conveyancing lawyer, and are often in breach of the Consumer Credit Code. (NOTE: Lawyers Real Estate has a policy of directing lenders to seek a client’s authority before generating such costs.)
How Costs Are Generated By Lenders
Often, it is easier for a lender to obtain a copy of the Transfer of Land and the Contract of Sale direct from a borrower’s lawyer than it is to obtain these direct from the borrower. (Borrower’s often pass the Contract to the lawyer, and don’t retain a copy for themselves.)
Similarly, it is easier for the lender to make direct contact with the borrower’s lawyer in order to obtain details of cheques required for settlement, and to find out where the lender must attend in order to deliver settlement cheques.
Unfortunately, some lenders have found that they can save costs by using their contact with borrower’s lawyer. These lenders will write to the borrower’s lawyer, and advise that settlement will not take place unless certain conditions are met. These conditions may include demands such as:
- Requiring the lawyer to attend at the lender’s office, collect the lender’s cheques, convey the cheques to settlement, and then deliver settlement documents to the lender.
- Requiring the lawyer to obtain a certificate of insurance currency from the borrower’s insurer, showing that the lender has an interest in the property.
- Requiring the lawyer to collect from the borrower additional fees charged by the lender.
- Requiring the lawyer to purchase certificates for the lender, but to charge the cost to the borrower.
- Requiring the lawyer to pass on “bad news” to save the borrower’s staff from being verbally abused. For example, we have had lenders request us to advise the borrower that:
- a fee was overlooked, and to obtain a bank cheque from the client payable to the lender;
- the client’s middle name was mistakenly omitted from the documents prepared by the lender, and the lender will not attend settlement unless the borrower travels to the lender’s office to rectify the problem within 24 hours;
- the lender had made a mistake in calculating stamp duty, and the client would have to provide a bank cheque for $8,000 and deliver it to the lender’s office within the hour.
Our Policy On Mortgagee Costs
Because of the risks of lender dealings getting “out of hand” in terms of responsibilities and costs, we inform every lender that we act for the borrower in relation to conveyancing work only. We then refer all lender demands to the client, for the client’s approval and further instructions.
Where our client is the purchaser, we provide the lender with copies of the Contract of Sale and the Transfer of Land, and we provide settlement information and cheque details as settlement approaches. This is part of our service, and incurs no additional costs.
Where we act for the vendor, we advise the lender that the property has sold, and we request that a mortgage discharge be prepared. We also advise as to settlement details. These are part of our service, and incur no additional costs.