If you're buying property or refinancing with a bank loan, your lawyer has specific legal duties to complete before the bank will release the funds. Understanding these requirements can help avoid delays and surprises during settlement.
We're using Westpac Bank's recent update to their general instructions to solicitors as an example, though similar requirements apply across most lenders.
Disclosure Under the Credit Contracts and Consumer Finance Act
Your lawyer must complete disclosure requirements under the Credit Contracts and Consumer Finance Act 2003 (CCCFA). This law protects borrowers by ensuring you receive clear information about your loan.
Under the CCCFA, we must confirm your identity and make sure you understand the loan terms before the bank advances any money. This includes checking that all parties signing the mortgage understand what they're agreeing to and that the disclosure documents meet legal requirements.
For couples and small business owners, this can mean extra steps if loans involve both personal and business assets, or if one partner is guaranteeing the other's borrowing.
Searching Property Records and Title Information
Before your loan settles, we're required to conduct thorough searches of public records and your property title. We then must tell the bank about anything we find that is "likely" to prejudice (harm or affect) the bank's mortgage security.
What does this mean in practice?
We search for any interests, rights, or claims registered against your property title. This includes things like:
- Other mortgages or loans secured against the property
- Easements (rights for others to use part of your land)
- Covenants (restrictions on how you can use the property)
- Caveats (legal warnings that someone claims an interest in the property)
- Encumbrances (any charge or liability attached to the property)
When does something prejudice the bank's security?
Westpac has clarified that an encumbrance will prejudice their mortgage if the document creating that encumbrance doesn't specifically prohibit the holder from exercising certain legal powers. These powers include the ability to sell the property to recover money owed to them under the Land Transfer Act 2017 and Property Law Act 2007.
In simple terms: if someone else has registered an interest against your property and that interest could potentially let them force a sale of your property, the bank needs to know about it. The bank will then decide whether they're comfortable lending with that interest in place, or whether it needs to be removed first.
Building and Council Compliance Issues
Your lawyer must also tell the bank about any breaches of building consents, resource consents, or problems with compliance certificates issued by your local council that they are aware of.
This includes situations where:
- Building work was done without the required consent
- Consented building work wasn't completed according to the approved plans
- A code compliance certificate was never obtained after building work
- There are outstanding notices or orders from the council
What happens if we find non-compliance?
Westpac requires us to disclose any unremedied non-compliance immediately. The bank may then require you to fix the problem before they'll release your loan funds. This can delay settlement and, in some cases, put your purchase at risk if problems can't be resolved quickly.
For small business owners purchasing commercial property, compliance issues can be particularly complex, especially with older buildings or properties that have been modified over the years.
What This Means for You
These requirements are designed to protect both you and the bank. However, they can create unexpected delays if issues arise.
Our tips:
- Start the legal process early to allow time for searches and any issues to be resolved
- If you're buying a property, consider getting a pre-purchase property report and building inspection before confirming you will buy.
- If you know of any building work done on a property you own, make sure you have the relevant consents and code compliance certificates before refinancing
If you have questions about your property transaction or loan settlement, please get in touch with us. We're here to guide you through the process and explain any issues that arise during our searches and due diligence work.
