Sometimes a purchaser does not have sufficient cash to pay the usual 10% deposit when purchasing a property. While there is sometimes the option to pay lesser deposit, a deposit bond can provide an alternative.
The deposit bond is effectively a policy document that tells the vendor that the provider will pay the deposit to the vendor in any of the circumstances where the deposit would ordinarily be forfeited by the purchaser.
No money actually changes hands where a purchaser provides a deposit bond. Instead, all purchase funds are paid at settlement. In the ordinary course of events, settlement takes place following the payment of funds in full and the deposit bond simply lapses.
However, what happens if the provider of the deposit bond is unable to make good in the event the vendor calls on it?
Recently, administrators were appointed to Deposit Power Pty Ltd (DP), following the appointment of administrators to CBL Insurance Limited (CBL) (the New Zealand based insurer which underwrites ‘Deposit Power’ deposit bonds in Australia).
DP is the Australian authorised manager for CBL issuer of all ‘Deposit Power’ deposit bond products. DP will not issue any new ‘Deposit Power’ deposit bonds for CBL after 23 February 2018. It would appear that claims under deposit bonds issued by CBL may NOT be processed for the time being and any claimants under those products will rank as unsecured creditors.
As a consequence of this announcement, there is a real risk for vendors accepting a ‘Deposit Power’ deposit bond as security for a deposit until there is greater certainty about CBL’s ability to pay claims.
This development is sure to cause some headaches across the conveyancing industry. If you have exchanged a contract which is secured by a ‘Deposit Power’ deposit bond, you should get advice about your rights in the event a purchaser defaults on the Contract.
It is important that you receive sound legal advice on all aspects of the conveyancing transaction. If you’re looking to buy or sell, contact our office for a quote and find out how we can assist you.
Information contained in this post should be considered as general only and is not intended to be taken as legal advice. For advice tailored to your situation you should contact the office to arrange an appointment.