Risk of bridge lender pulling out after exchange

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    Risk of bridge lender pulling out after exchange

    Hi all,

    I am looking to buy a property in auction.

    What does a bridge lender require to give an agreement in principle? Then from here if I was to win the auction, what conditions need to be met to drawdown? Is the offer conditional on the lenders valuation/legal/structural due diligence also? If this is the case is there not a big risk I could get agreement in principle bid on idea the funds are there and something come out post exchange and the bridger pulls out and I lose my deposit?

    What is the difference in the due diligence a bridger undertakes and a normal lender? Can they just pull out after exchange after undertaking further due diligence or do they do most of it before giving agreement in principle? Eg following exchange if their lawyers dont like a clause in the lease or if the valuer picks up something like (knotweed etc?) is there not a risk they can just pull out? To me this is quite a big risk, surely I am missing something? Otherwise you are effectively held at whim of the bridger and there is lots of uncertainty with 10% deposit at risk

    #2
    An enquiry form has to be submitted to the lender who in turn will provide Indicative Terms which includes the terms of the facility , whether it is aRolled up Interest or Monthly Serviced Loan, the fees which will fall due including the valuation costs.

    Once you have had your bid accepted the clock starts ticking and you would then need to pay the valuation fee and the full application submitted. The lender will then issues a formal offer and instruct its solicitor to act. This will allow sufficient time to enable the transaction to complete before the deadline. Clearly the only obstacle will be the amount of money being provided if the valuer were to down value remembering that the normal basis for a Bridge Facility is for a 90 day valuation to be provided which can be lower than the Open Market Valuation.

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      #3
      I dont see the valuation as the only obstacle.

      What happends if the bridge lenders solicitors pull out any punitive clauses in the lease they are not happy with or the surveyor finds eg japanese knotweed, mold, structural issues (anything really).

      What I am trying to ask: is there is a chance the lender can pull out following their full due diligence and inspections. I understand the facility amount may reduce due to valuation but my concern is around lender completely pulling out and what suretys are there?

      The lender may say yes upon review of the legal pack but how can I know their lawyers etc wont request they pull out due to findings etc?

      Am i then to take this is the risk of auctions?

      Comment


        #4
        It is essential that you obtain the legal pack which is available upon request and before the auction and inspected .
        The valuer would identify situations like Knotweed and if so then clearly you wouldn’t proceed until the matter was investigated.
        From my experience any issues which can ultimately be overcome can be dealt initially by certain indemnities thereby allowing funds to be released to complete. I would also say that if you are prepared to pay the associated fees, the application can be submitted and processed before the auction and allow the solicitors to examine the legal pack.
        Buying at auction can be stressful but equally rewarding but if you are a cautious person then stay clear and buy through the normal channels.
        Your broker if he is experienced in such matters can handle much of the complexities associated with auction purchases.

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          #5
          every proposed loan advance is subject to formal contract. A prospective lender can pull out at any time up to the point of advance; or for that matter, in theory subsequently. All commercial loans can, after all, be called in although there would normally have to be a breach. You are dealing with secondary/tertiary lenders

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            #6
            Absolutely correct, until the money is released nothing can be guaranteed but a decision not to proceed has to be based on a relevant and perhaps undisclosed fact either on the property or indeed the applicant.

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