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Practitioners acting for vendors of property are reminded that they must not allow the vendor to enter into a contract for the sale of the property, where the vendor only has negative equity in the property, without first making appropriate arrangements either with the vendor’s lending institution or the purchaser. It is imperative that the vendor’s solicitor ascertain as early as possible whether the purchase price will be sufficient to redeem all charges affecting the property for sale.

The committee recommends that, as soon as is practicable after the receipt of instructions but, in any case, prior to the coming into being of a binding contract for sale, the vendor’s solicitor would obtain redemption figures from the lending institution(s) in question.

Where the vendor’s solicitor discovers that the monies required to redeem the loan exceed the anticipated proceeds of sale, the vendor should be advised of the position immediately and instructions sought regarding the payment of the shortfall in the redemption monies. Alternatively, the vendor may be able to reach some arrangement with the lending institution. The vendor’s solicitor must ensure that any such proposals or arrangements will enable him/her to comply with any undertaking given to the lending institution. Once the solicitor is satisfied in this regard, a special condition, outlining the position, should be inserted into the contract for sale.

In drafting the special condition, the vendor’s solicitor should be cognisant that it is the vendor’s responsibility to make good title and the special condition should, therefore, confirm that the vendor’s solicitor will, prior to completion, demonstrate that he will, on completion, be in a position to clear all charges on the property. Where a feasible solution is not forthcoming and this would make it impossible for the vendor’s solicitor to comply with his/her undertaking to the lending institution, the vendor should be advised that the solicitor is unable to act in the proposed transaction.