Due to recent legal advice provided to the settlement industry, more and more settlement agents will no longer hold extra funds in their trust accounts – including Residential Settlements.
Under the Settlement Agents Act 1981, money can only be drawn from a settlement agent’s trust account under specific scenarios: for the purpose of completing settlement, in accordance with the contract, to pay the real estate agent’s commission, or by prior written consent of all parties involved in the transaction.
Often, a buyer will discover a fault in the property during final inspection, and will wish to hold back funds from the seller to use for repairs after settlement. However, doing this through a settlement agent’s trust account relies on the ability to obtain specific written consent from both parties, so it leaves settlement agents in a tricky legal situation.
For example, if one party refuses to provide consent (perhaps the buyer has discovered extra items they believe should also be repaired), the money will be left sitting in our trust account while the buyer and seller engage in legal action, which is a costly process and may exceed the amount being held. Holding funds for an extended period of time like this is frowned upon by the Department of Consumer Protection.
Fortunately, there are other ways to hold back funds for repairs on a property.
One option is that one or both parties obtain a quote on the repairs needed. Based on that quote, the seller can credit the buyer with extra funds as compensation at settlement.
A second feasible (but more expensive) option is for the buyer and seller to hire a solicitor, who will hold the funds for repairs in a trust account and deal with the distribution of those funds.
As a preventative measure, encourage sellers to be proactive in making repairs, even before buyers discover them. Conducting final inspections earlier in the sale process is another step that will help to ensure sufficient time is allowed to repair faults or organise a quote and compensation.
Dealing with issues early and diligently, without the use of a settlement agent’s trust fund, will help make the repairs process simpler and less stressful for all involved.
Image by Stephen Cuyos via Flickr.