Play safe with deposits

2014-08

An agent was appointed by a prospective purchaser to buy a property.

Before the provisional agreement for sale and purchase was entered into, the agent noticed that the property had been mortgaged a number of times and that the vendor had not produced satisfactory evidence of his ability to pay off the mortgages.

The property was very likely to be in negative equity. Moreover, the vendor demanded an exceptionally large deposit.

There were obviously risks involved in payment of deposits directly to the vendor as some vendors could fail to discharge the mortgage or abscond after receiving the deposit.

However, the agent did not alert the prospective purchaser to the possibility that the property was in negative equity, nor did he advise the purchaser of the desirability of arranging for the stakeholding of all deposits by a firm of solicitors.

Later in the transaction process, the purchaser’s solicitor found out that the property was indeed in negative equity and that the sale could not proceed. By that time, the vendor could no longer be contacted and the prospective purchaser had lost the deposit money.

In the above case, the agent’s failure caused the purchaser to suffer loss of his deposit money.
The agent’s licence was temporarily suspended by the Estate Agents Authority for failing to exercise due diligence in protecting the interests of the client.