(This article applies only to Conveyancing transactions in Victoria where the buyer places a cash deposit towards the purchase).
One of the questions we most commonly hear from our vendor clients is “When can I get access to the deposit”? We hear this question from our vendors in Mordialloc, Brighton, Cranbourne…. Essentially anywhere in Victoria where a home is sold, our vendors wonder if they can obtain their deposit before settlement.
The reasons that a vendor may wish to have access to the deposit prior to the settlement, including where they are purchasing another property and have to pay a deposit on their new purchase. Or, they may have moving expenses that will be easier to manage if the buyer’s deposit is already within their own bank account.
The good news is that it IS possible for a vendor to gain access to their deposit prior to the settlement of the property. The BAD news is that there is no guarantee of accessing the deposit until settlement, as there are eligibility criteria enshrined in the Sale of Land Act legislation and some waiting periods may apply.
A request to access the deposit is sometimes called a “Section 27” release. This refers to the section in the Sale of Land Act that outlines the circumstances of when, and if a vendor can receive access to the deposit before settlement. When speaking with your selling agent, they may refer to your request as an “early deposit release” or “section 27”. It is important to note that they may use these terms interchangeably. Regardless of the terminology used, the process remains the same.
So what can a Vendor do to maximise their opportunity of obtaining access to their deposit prior to settlement?
The answer is simple – ensure that you sign and return all documents to your conveyancer as early as possible.
A good conveyancer will send you discharge of mortgage forms to sign before your property is even sold. This allows your conveyancer to confirm your eligibility to request an early deposit release prior to the sale and to request your deposit from the vendor immediately after the sale of the property.
So from there, what happens? Our five- step process is below:
1. Complete a discharge of mortgage document and submit to your bank
2. Obtain mortgage information from your bank to confirm eligibility
3. IF eligible, your conveyancer can ‘serve’ your request on the buyer
4. The buyer reviews the mortgage information and if they agree to release the deposit, they sign and return. NOTE: the legislation allows the buyer 28 days from when they receive the request to decide if they agree to the release
5. After the buyer agrees to release the deposit, or their 28 day review period expires, your conveyancer instructs the agent to provide your deposit to you.
What may be the reasons that you may not be eligible to receive your deposit prior to settlement?
There are a number of reasons that you may not be eligible and we recommend talking to your conveyancer about the process as early as possible. However, the most common reasons we come across are:
1. The amount owed on your home loan in comparison with the sales price is too high.
2. You may be behind on your loan repayments
3. Your loan is a line of credit or portfolio loan (note: not all line of credit or portfolio loans are ineligible – have a chat with your conveyancer).
Line of Credit and portfolio loans are more common in the suburbs closer to Melbourne, like St Kilda and Caulfield, but this type of loan may be used to secure property anywhere in Victoria. We recommend having a chat with your broker before you decide to list the property for sale if you think you have may of these loans, as the processing time for the bank to generate the deposit release statement and prepare for settlement can be longer – possibly impacting on your expected settlement date.
As you can see, there are no guarantees that you will receive your deposit until settlement and even if you are eligible, it may be 28 days or more before you can access your deposit.
Therefore, we do recommend discussing the deposit release with your conveyancer before the property sells, and work with them to obtain eligibility criteria from your bank in the shortest possible timeframe so your deposit release countdown can commence!
If you are ineligible to request an early release of the deposit from the buyer, or the 28 day consideration the buyer has after requesting the deposit falls after your settlement date, then your selling agent retains the deposit in their trust account and forward to you after settlement (usually after deduction of their sales commission and advertising costs).
Also consider asking your conveyancer their costs for obtaining the deposit release document from your bank and preparing the official release request – some conveyancers will charge extra for this service. If there is any chance that you might want to request the deposit before settlement, then it is better to have an early conversation with your conveyancer about the process and costs so that you can be completely prepared once your property successfully sells.
Best of luck with your sale!