Either way, you may also want to do your own full title search before you sign anything (your lawyer will advise). If you don't do it before you sign the contract, you should before you exchange contracts.
The title search:
- will tell you whether the seller has properly disclosed any "notifications" on the title e.g. an easement;
- and allows you to be sure the details in the contract are accurate.
What's on the title?
In general, you will find:
the names of the owner(s) of the land;
- description of the land;
- and covenants.
You can own a property with another person in a number of ways.
- Joint tenancy (this is not an accurate description, because the owners are not really "tenants"): Joint tenants are just that - they own the property "jointly". If one dies the other automatically inherits the property. This is usually the way property is owned by married and de facto couples. Joint tenants own equal shares of the property.
- Tenants in common: Tenants in common can sell their share of the land or leave it to any person in a will. Tenants in common can own the property in equal shares or on any other basis, e.g. 70% - 30%.
There are pros and cons of each type of ownership. Talk with your solicitor about which will best suit you
These are restrictions that are attached to the land e.g. you might not be permitted to build a galvanised shed. You will sometimes see the phrase, "no encumbrances" in a property advertisement. Make sure you check.
An easement is something that restricts the ability to use the land, for instance whether there is a right of way across the land or part is reserved for supplying power or sewerage.
This is common for blocks in major land developments. An easement is important because it might mean you can't build over it. It's also very important to check whether there are already any buildings over an easement.
Easements should be disclosed on the contract documents – make sure you know where they are.
If you want to build a solid structure on top of an easement, you will generally have to obtain permission from the holder of the easement e.g. your local power provider might have a "right of way" to allow access for workers to maintain electrical infrastructure. It might include restrictions against:
- building structures;
- excavating the ground;
- erecting fences above a certain height;
- attaching anything to a transmission tower;
- stockpiling materials or garbage; etc.
A caveat is like a warning sign. It alerts you that someone else claims an equitable interest in the property, e.g. the seller has a personal loan and this is secured against the property.
If there are any caveats on the title, it is important to get legal advice before you buy. Your lawyer should make sure that:
- the caveat is capable of being removed by the person who lodged it;
- and it will be removed before or at settlement (this makes sure that you have a good title to the property).
A covenant is like a promise that must be kept by each new buyer of a property. It can affect vacant land or land that is built on.
Usually covenants are "restrictive", which means they stop the owner of the property from doing something. For example, a restriction on the type of materials that can be used in any building on the property.
The covenant usually appears on the title. If there is a covenant it is important to get legal advice. Your lawyer should make sure that you fully understand the implications of the covenant. Remember, it is not easy to remove a covenant from the title. Ask yourself: how will this covenant affect my future plans and/or the value of the property?
A title search will tell you whether the seller has a mortgage which has been paid out (this is called "discharged").
If it hasn't been discharged (which is usually the case) the mortgage must be paid off at settlement - usually the seller will re-direct part of the money they receive from the sale to pay off the mortgage. You will then be given a document called a "Discharge of Mortgage" which must be lodged at your State or Territory Land Titles office.
Be careful - it is easy to borrow, it is often a lot harder to face the reality of monthly payments to repay the loan. It is all very well to rely on legal remedies when you have a problem, but it is far better to follow some simple rules when looking around for an appropriate credit provider. Always check:
- what sort of security is required e.g. if you obtain a property mortgage the financial institution will require title over the property;
- the interest rate that will be charged, and how often the payments must be made (e.g. weekly, monthly);
- how the rate is charged i.e. is it a flexible or fixed interest rate;
- the actual amount, in dollar terms, that will be paid over the term of the loan (you may be surprised);
- whether there are charges that effectively add to the interest payments e.g. a loan maintenance fee;
- how long the loan runs for (the term of the loan);
- what happens if you are unable to repay the loan, or if you experience short term financial difficulties;
- whether you are able to repay the loan over a shorter period, and whether penalty rates will attach to it.
- whether the contract is covered by the Consumer Credit Code.
Information you must be given about the mortgage
Before a mortgage is offered or entered into, the borrower must be given a statement as mandated by the Consumer Credit Code.
This information must be contained in the contract, or it can be given in a separate document.
The borrower must also be given a document that sets out the borrower's rights and obligations, and also explains what the borrower should know about their proposed credit contract.
If you use a mortgage broker, it's still a good idea to do your own research about the loan. And don't be scared to ask the broker about their business. Amongst other things, you can ask:
- do you belong to a reputable industry association?
- are you independent?is there a fixed roster of lenders you deal with?
- do you carry professional indemnity insurance?
- have you disclosed to me all the fees and commissions that re payable and/or received
- do I fully understand the loan conditions?
- am I satisfied that the broker has justified their recommendations?
- do I know the details of the application sent to the lender?
- Have I seen a copy of the application?
Use a comparison rate. This is a tool that allows you to uncover the true cost of a loan i.e. it includes both the interest rate and fees and any fees/charges that relate to the loan, calculated to a single percentage figure.
So a bank's advertised interest rate may be 5.49% and its comparison rate 6.75%. Make sure you are comparing "apples to apples". You can find information about this tool at www.creditcode.gov.au.
Last updated - April 2010