Don’t pay deposits directly to vendor

2017-03

It may be risky for purchasers to pay deposits directly to vendors – especially in the transaction of properties involving undischarged mortgages.
Estate agents should warn the purchaser of the risks involved, and advise the client to stakehold the deposits by a firm of solicitors before arranging for the parties to sign the provisional agreement for sale and purchase.

Otherwise, the agents may be subject to disciplinary action by the Estate Agents Authority.

An estate agent acted as a dual agent in a residential property transaction. He deleted the deposit stakeholding clause preprinted on the provisional agreement without informing the purchaser, before arranging for both parties to enter into the contract.

He then arranged for the purchaser to pay the deposit directly to the vendor. Furthermore, the agent did not conduct a land search immediately before the PASP was signed.

The purchaser later discovered that an undischarged mortgage was still registered against the property. In addition, the land search of that property showed there was an irrevocable power of attorney executed by the vendor as a guarantee of repayment to a finance company.

The EAA disciplinary committee was of the view that the estate agent had deleted the deposit stakeholding clause on the PASP, and arranged for the direct payment of deposit to the vendor without explaining the risks to the purchaser.

Thus, he failed to protect and promote the interests of his client. Besides, he also failed to carry out a land search and provide a copy of it to the purchaser immediately before a PASP was signed.

As such, he was in breach of the Code of Ethics and Estate Agents Practice (General Duties and Hong Kong Residential Properties) Regulation.

The EAA committee suspended the estate agent’s license for seven days, and attached a condition to his license requiring him to acquire 12 points in core subjects under the Continuing Professional Development Scheme within 12 months.