EAA Publications
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| The Freshman |
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| In a mortgagee sale, the
purchaser should pay attention to additional clauses in the
agreement |
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Through an estate agency,
Mr Tam inspected a well located flat which was put up for sale
by the mortgagee bank. The price, at over 10% below market rate,
was very attractive. Mr Tam decided to clinch the deal without
waiting for the estate agent to complete the land search. The
agent then produced a printed agreement in the bank's standard
format for him to sign. Mr Tam did not even check it carefully,
as he wanted to have it signed as soon as possible so as to
prevent last minute changes that might lead to the loss of a
good flat.
Later, Mr Tam learned from his solicitor that the former owner
of the flat was three years in arrears for management fee. The
amounts owed by the previous owner included $28,000 in management
fees, $10,000 in interest thereon and $8,000 in legal costs,
totalling over $40,000. As a clause in the agreement stipulated
clearly that the bank was not liable for any sum of money owed
by the previous owner, Mr Tam as the purchaser might have to
pay it. Mr Tam then discussed the matter with the bank which,
to Mr Tam's dismay, insisted that according to the agreement
such moneys were not the responsibility of the bank. Mr Tam
had no choice but to pay the moneys owed.
Generally speaking, in the case of a mortgagee sale, there are
usually clauses inserted into the agreement to protect the mortgagee.
For example, the mortgagee will not guarantee that the title
is good, disclaim responsibility for removing illegal structures,
or it may require the purchaser to pay for its legal costs.
As a consumer, one must be careful before signing any agreement
and should read all the items and clauses in the document carefully
to make sure that one clearly understands the contents of the
agreement. When in doubt, one should consult a lawyer.
It is not advisable for the purchaser to sign an agreement hastily
before property information from the land search is available.
If a land search reveals any liability attached to the property,
he should discuss with the mortgagee whose responsibility it
is to discharge such liability. Although the mortgagee may not
be held responsible, the purchaser may at least take such liability
into account when considering what to offer to the mortgagee.
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