You may not be aware that ANZ have recently updated their instructions to all lawyers who are acting for customers borrowing from ANZ. The new rules can be found here.
In short the changes mean that lawyers are now obligated to review and report to the bank on the property's title (and sometimes also the LIM report), even if the customer doesn't feel that this is necessary. The new rules also mean that offers of finance from ANZ may not be truly unconditional until ANZ is satisfied with the outcome of the lawyer's review.
ANZ's rules are compulsory and must be followed by all lawyers acting for ANZ customers. We set out the new rules and their implications below.
New rules for new lending
If a new mortgage is being registered ANZ is now asking lawyers to advise the bank about "any instrument, charge, easement, or other restriction affecting that record of title that:
- could materially and adversely affect the property's value or our ability to sell the property, or
- may prejudice our mortgage, affect our ability to enforce our rights as mortgagee, or increase our obligations as mortgagee."
Specifically ANZ are concerned about any registered document which may materially affect their security.
- For example a document which gives someone else a right to sell, mortgage or caveat the property. We have recently reviewed a property which would have required the new owner to abide by compulsory resident association rules and to pay an annual levy. The rules gave the association a right to sell a property if that property's owner had breached the rules or fallen behind in their levy payments. Understandably the bank was concerned that another entity had a pre-existing right to sell the property which would have trumped the bank's own rights to a mortgagee sale if loan payments were missed.
- Another example: ANZ would also want to be informed if a registered instrument allowed a neighbour to recover a large amount of liquidated damages from the owner because they'd breached a covenant e.g. the owner had built a house in way which breached the development standards of the subdivision.
You can see above that the bank's rules also now ask the lawyer to make a judgement as to whether the documents registered on the title will affect the property's value. It is often difficult for lawyers to make this call considering we can't profess to be expert valuers.
You can also see that it is problematic if the client is buying off the plans and the covenants that will govern the subdivision haven't yet been finalised. In such a case a prudent lawyer would ask the developer for details of the proposed covenants and/or review the subdivision plan.
New rules for replacement lending
If an ANZ customer is refinancing (for example changing the ownership of the property from them personally to their trust's ownership) then lawyers will be required to undertake an updated review on the title to see if anything new has been registered since the date of ANZ's original mortgage.
New rules for buyers of commercial buildings or buyers of either residential apartments or residential land that is being subdivided or amalgamated
ANZ has also updated their requirements if a new mortgage is being taken over a commercial building, a residential apartment, or a residential property that is being amalgamated or subdivided.
Lawyers will now be required to obtain and review a LIM for these types of property and confirm that the correct consents and certificates have issued for any building work that has been undertaken.
Lawyers will also be required to ask their clients if they are aware of any building work that isn't recorded in the LIM report. For example, such unconsented work might have been picked up in a building report or valuation that the customer has obtained. If the customer hasn't obtained a building report or a valuation, then ANZ wants to know this so they can discuss it with the customer directly.
ANZ's offers are now effectively conditional on the outcome of the lawyer's review
ANZ have specifically said that the lawyer's advice will help ANZ decide whether or not to proceed with lending to the customer.
While our experience to date has been that the outcome of the due diligence reviews hasn't resulted in ANZ offers of finance being pulled, this is a possibility.
We think that in the majority of cases Cavell Leitch will be able to help the client find a practical solution that the bank is happy with. This might involve negotiating an exception to ANZ's rules, reducing the lending to a limit the bank is more comfortable with, arranging for the bank to be provided with additional securities, or negotiating with the other chargeholders on the title so that ANZ's interest takes priority over their interests.
Nonetheless, the potential consequences are serious for a client having their finance pulled when they are otherwise unconditional. They may not be able to settle on time and could face penalty interest. They may even see their contract cancelled and lose their deposit.
We believe that ANZ has every right to completely understand the nature of the properties they are taking a security over. We understand where ANZ is coming from, particularly given the risks of lending in the current uncertain environment. To borrow perhaps the most overused phrase of 2020: it is what it is!
It is however worth asking customers to keep ANZ's new rules in mind when making offers on a property, or confirming an agreement's conditions. Great communication with the customer's contacts at the bank will also be essential.
- The new rules mean that lawyers are now obligated to review and report on the property's title to the bank, even if the customer doesn't feel that this is necessary or they want to avoid the cost of a title review.
- ANZ customers wanting to make unconditional offers on property, or wanting to unconditionally confirm a purchase agreement, would now be well advised to discuss this with their lawyer and banker before signing their offer or confirming their conditions.
- Where possible please build enough time into contracts to allow these discussions with the bank to take place.
- As always, solutions can be found with the right legal advice.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.