Circular No. 99-01 (CR) 30 March 1999
Negative Equity

As the property market has experienced a downturn, many properties purchased during the peak have become properties with "negative equity". The Authority has received many complaints relating to properties with negative equity. The vendor would disappear after receiving the deposit. The mortgagee bank took possession of the flat. The purchaser lost both deposit and the flat. The agent received no commission. Practitioners acting in respect of properties with potentially negative equity are advised therefore to pay attention to the following:

  1. If a land search reveals that the last transaction price of the relevant property is higher than the asking price of the existing owner and the same is mortgaged, an agent should advise the purchaser that the relevant property may be a property with negative equity and that he should ascertain the adequacy of sale price to repay the existing mortgage or mortgages and also the vendor's repayment ability.
  2. In case of doubt, practitioners should advise the purchaser to declare, when signing the provisional agreement for sale and purchase, that the agreement is subject to the vendor discharging all mortgages/charges over the property on or before Completion and request the acting solicitors to take appropriate steps to protect the purchaser's interest when preparing the formal agreement for sale and purchase.
  3. Agents acting for the vendor should also advise the vendor to provide the relevant bank repayment statement in order to facilitate the transaction.
This Circular should be made available for the
information of all staff engaged in estate agency work.

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