What is a Section 27 Statement?
A Section 27 Statement is a document that, once executed, enables the seller to gain access to the deposit funds before settlement occurs. Here's a quick rundown of how it works...
The deposit
When purchasing real estate, a purchaser must pay a deposit upfront to secure the property. This is usually 10% of the sale price (although it could be more or less). Once paid, the deposit is held by the real estate agency in a trust account.
On settlement day, the purchaser gives the seller the balance of the sale proceeds in return for the title of the property. If no Section 27 Statement has been served, at this time, the deposit will also be released to the seller less the real estate agent’s fees.
So what is a Section 27 Statement?
The seller may need early access to the deposit to enable them to purchase another property or to pay down their mortgage. The Section 27 Statement is a written request by the seller for early release of the deposit. It contains details of any mortgage or caveats over the property, which then allows the purchaser to make an informed decision about whether to consent to the release of the deposit.
In certain circumstances, conveyancers may consider it safe for the purchaser to consent to the seller accessing the deposit funds prior to settlement. Most importantly, the seller should have sufficient equity in the property to enable the mortgage to be discharged at settlement without relying on the deposit and they should not be in default of their mortgage.
If a purchasers' conveyancer agrees it is safe for the seller to have early access to the deposit, the purchaser can elect to sign the Section 27 Statement. Once this is done, the real estate agency holding the funds in trust is authorised to release the deposit to the seller.
If a purchaser objects to early release, depending on the circumstances, the seller may not be able to access the deposit until settlement. If a purchaser neither consents or objects to the request within 28 days of receiving the Section 27 Statement, the deposit can be released to the seller by the real estate agency holding it in their trust account.
A purchaser has 28 days from receipt of the Section 27 Statement to object to release.
Is it a good idea for a purchaser to sign a Section 27 Statement?
If the details from the bank show the seller to have sufficient equity in the property to be able to discharge the mortgage at settlement, it is often a good idea for the purchaser to consent to early release of the deposit.
This facilitates good relationships between all parties involved in the transaction, and if you later require some goodwill in return, the seller may be more likely to agree to some leniency. (Say, if your bank delays settlement and the seller is deciding whether to charge penalty interest or let you have early access to the property).
As always, we suggest all parties seek the advice of their legal representative before taking any action.
Why would a seller serve a Section 27 Statement?
There are many reasons why a seller would serve a Section 27 Statement in order to gain early access to the deposit: They may need the funds for their next purchase; to pay down their mortgage or just take a holiday. However, early release of the deposit can never be guaranteed, as banks do not always reply promptly and the purchaser may not consent. We therefore advise seller's to be aware of these circumstances if they are relying on the success of a Section 27 request.
Also, a Section 27 request can take some time to prepare if the seller has a mortgage on the property. The document required from the bank regarding details of the mortgage can take a while to obtain, particularly if the seller's financial institution is a smaller bank or not one based in Victoria.
Disclaimer: We recommend all parties seek legal advice when considering serving or signing a Section 27 Statement.