Forced to Buy a Burnt-down Property

Hi all,

I am new and joined because I am in a bit of trouble.

I bought a house, and I thought I was lucky enough to win the auction.

However, two weeks after the auction, before the settlement date, the owner had an accident in the kitchen and burnt down almost the entire kitchen. All the cabinets, some walls, and some part of the roof. There is basically a hole on the roof and signs of smokes everywhere. Walls between the kitchen and living room is half gone, the window is broken, and water damage from the fire engine is on every part of floorings and walls. The damage so extensive they moved out straight away.

Now, here is my problem starts.
I then called the real estate agent to cancel the deal. They said they will try their best, calling the owner and see what they can do.
The agent said the owner didn't answer their phone and told me to call my solicitor.

I called my solicitor to cancel the deal obviously.
Here is what he said:
Have you got building insurance? I said no of course, because I haven't settled on it.
My lawyer said the once I won an auction, it is my property, and I have to settle on it, no matter what.
I said, what the F, BS is this??? It is obvious to me that the house is not at all in the same condition it was when it is sold to me. My lawyer said he need to discuss with his colleagues for whatever other legal avenue available. Worse come to worse, he said I lost my 10% deposit. However he also said that if the house then sold at lower price (which is 100% definitely), I may have to pay for the difference. I said again all the swear words known to me. This could costs me hundreds of thousands, plus I can't live there, what am I gonna do with this?

I don't know yet if the owner has building insurance, or if their insurance companies can pay me out.

Sorry for all the rambling, but I just can't.

Edit: 11:41am
Seller's solicitor told mine that the owner have insurance. However it is unclear what will. happen after. I'm a little relieved now.

Edit 11:53 AM:
It seems that the seller meant was content insurance, not building insurance, however it still isn't very clear, and they seek clarification.

Edit 12:05 AM:
Apparently police is investigating this because it involves significant material damage.
Idk what this mean to me tbh.

Edit 2:57 PM:
They definitely have building insurance. However I think perhaps it is still best to back out of the sale, let them deal with the payout and sell it to someone else who can rebuild it. Otherwise, it can be messy for me waiting for them to sort their insurance and transfer the payout to me.

Edit 23/03 3:19 PM:
Vendor's solicitor seems to hold on to the 'unconditional' rule. My instruction to the lawyer is clear, do not settle no matter what. I have told the bank's lender too, and they don't seem to know what to do? I don't know what the vendor want, my solicitor thinks it could be that they want to hold on to insurance payout and full payment too. My solicitor thinks it may gone down to court, but i am more likely to win. I hope this doesn't go on too long, I need a place to live…

Comments

  • +11

    What state are you in? The rules may slightly vary between states

    eg QLD

    You’ll need to talk to your solicitor or agent about when you become responsible for a home. But in Queensland the buyer generally becomes responsible from 5pm the next business day after both parties have signed the contract.

    Therefore, if there’s damage to the property after 5pm the next business, the buyer is responsible for covering that damage. '

    SOURCE

    • I'm in NSW

      • +116

        I'm in NSW

        In that case your lawyer is incompetent at best, and you need a new one ASAP.

        Insurance risk passes at settlement in NSW. Tell him to read section 66K of the Conveyancing Act. (Unless there was a special condition in the contract you have forgotten to mention?)

        • +4

          IANAL, but the section 66K says

          (1) The risk in respect of damage to land shall not pass to the purchaser under a contract for the sale of the land until—

          (a) the completion of the sale, or

          (b) the time stipulated by the parties to the contract, being a time after the purchaser enters into, or is entitled to enter into, possession of the land,

          whichever first occurs.

          My layman interpretation is "the time stipulated by the parties to the contract" could be different than the settlement date. We haven't seen the contract.

          • +4

            @bio:

            being a time after the purchaser enters into, or is entitled to enter into, possession of the land

            (emphasis added)

            That is the important part. Obviously haven't seen the contract, but I hope the OP would have mentioned if he/she was living in the property when the vendor burnt the kitchen down.

            • +3

              @djkelly69: Honest question, does insurance even come into this? Seller has damaged the house and is responsible? If it was damage from a third party then yes, definitely its a question of insurance

              • +2

                @Bren20: If it is an accident and not arson the sellers insurance should cover it

              • +23

                @Bren20: I am in Vic and recently purchased via auction. Settlement was two months away and I had a feeling that the owner might destroy some of the areas in these two months.

                I reached out to my solicitor and she emphasised that the settlement cannot happen if the house isn’t in same condition as it was
                Sold as. If any damage, can be assessed by independent valuer and that amount would be held if I intend to go ahead with settlement. That was relief. At the time of settlement, house was in good condition though.

                • +2

                  @PopCounty:

                  I reached out to my solicitor and she emphasised that the settlement cannot happen if the house isn’t in same condition as it was

                  Thats good to know. Was this an auction situation as well, if not would it still apply in the case of an auction?

                  • @cadwalader: Yes. It was auction. And my solicitor was really proactive on all things. She was the one defining silver lining with sellers’ solicitor about settlement and house being in really good condition.

                • +1

                  @PopCounty: Possibly in Vic and NSW, but in Qld and SA and ACT its the buyer's risk
                  Don't know about others

                • +2

                  @PopCounty:

                  Settlement was two months away and I had a feeling that the owner might destroy some of the areas in these two months.

                  I am interested in this part!! how did you think this way?

                  • +3

                    @kozb: When I won auction, the settlement date was fixed in two months time. With a condition that settlement can still happen in a month (to avoid Christmas holidays) if I chose to do so with 2 weeks intimation. RE agent said the owners agree to this clause arrangement (yes, I was so excited to have won auction in pretty intense fight that I trusted RE agent more than I should have and forgot to put in writing).

                    A week later, when I actually proposed for one month settlement, the owners denied request. Fair enough. They exercised their right.

                    A week later the owners requested to early release of 10% deposited funds, I denied or say, ignored. My solicitor said I could sit on this for 4 weeks. As this is my right. So I excercised my right. Therefore I had this feeling that the owner may destroy some of household things.

                    However, they had kids and I started feeling sorry for them. As my decision could have impacted their plans. So I really approved pre release to funds early. Even though it was risk to me.

                    Two months later, if I look back, it all looks immature from my end. Anything you agree, put in writing. Any comms, let it happen via solicitor. DONT LET AGENT BE MEDIATOR. He will only think of seller.

              • @Bren20: What do you think home and contents insurance is for?

                • +1

                  @Tony-Abbott: I don't think it's relevant here? If OP damaged the house then it's relevant, if a third party (the seller) damages the house OP can recoup losses from seller?

                  Edit - even if OP does have insurance and they do pay out, aren't the insurers going to pursue the seller for costs?

              • +1

                @Bren20: When I purchased in vic I was advised both times to get insurance asap

            • @djkelly69: "whichever first occurs."
              would actually be the relevant part here… if it's like Victoria (and if my memory is ok on this… it may well not be)… if it was bought at auction the sale is considered done isn't it?
              That being the case clause a has been fulfilled.

              But my memory is likely off.

              • +2

                @Competitionlover: Not sure where people are getting this from, but no, settlement/completion does not take place straight away for an auction. You exchange contracts unconditionally at an auction, and the settlement will then usually be due within 30-60 days or so (depending on state and negotiations).

                • @djkelly69: Ah ok… that would be my memory being a bit hazy then… I knew there was something different about auctions (it might have been the cooling off period is waved?). So the settlement is still some ways off, thanks for the clarification.

                  I was probably thinking of it in this sense (which does imply the sale is considered done)

                  "When is the property 'sold'?
                  There is no legally binding contract until both buyer and seller have signed the contract of sale.

                  If you are the successful bidder at auction:

                  you will be offered a contract in the same terms that was on display before the auction. You cannot make the contract subject to any further conditions - for example, obtaining finance or having a longer settlement period, unless the seller agrees to them
                  you will be asked to sign the contract to make your formal offer to buy the property. The seller accepts your offer by also signing the contract
                  you must pay the deposit specified in the contract (unless otherwise agreed)
                  there is no cooling-off period.
                  When you and the seller have signed the contract and the deposit has been paid, the property has been sold and the sale is binding and enforceable.

                  The sale is then finalised at settlement when:

                  all checks have been made
                  the title and transfer documents have been exchanged
                  the balance of the purchase price has been paid."

                  (That's from consumer affairs victoria).

          • +1

            @bio: the time stipulated by the parties to the contract,

            possession of the land

            If it's not settled, and the previous person is still living there, with no form of tenancy agreement, he doesn't have possession.

          • +1

            @bio: nope, its very straight forward.

            Completion of the sale = settlement (that sorts out A).

            Entitled to enter/possession = when you are given keys and have permission to enter (ie if you have an agreement to move in prior to settlement… that sorts out B).

            Property is NOT the buyer's responsibility until settlement, and if there is a material change to the condition of the property between exchange and settlement, the buyer can rescind the contract.

        • +11

          Can you imagine buying something and when it’s being delivered it’s damaged because of the sellers fault (not even courier) and you are liable for that. F that bullshit. I would be interested to know which states’ law in Au actually allows that..

          Totally agree OP needs to fire the cow who was supposedly paid to advise on legal matters. So many incompetent people getting paid high fees that they don’t deserve.

          • +1

            @aboogee: QLD, ACT, SA its buyer's risk
            NSW it's sellers
            Not sure about others

            • @MrFrugalSpend: Oh gosh? Sounds like I could advertise a property which is well renovated, sell it and trash it before settlement with no consequences?

              Man I’m avoiding those states

        • Might have to go back a few steps and consider the contract, if the contract includes a house then you should be ok, if you are buying the land (yeah I know you buying a house) which is what real estate actually is then your stuffed.

          Don’t forget, real estate is land… the house on it is actually free with the land sale.

          Good luck with it.

          • @tonsta: NSW contracts specify if you are buying vacant land, house+improvements, etc.

            • @djkelly69: so back track and check the contract, see what it says. If its vacant land, op is stuffed.

              • +1

                @tonsta: I think it is safe to assume the OP would have mentioned if he was only buying vacant land.

                There are lots of things we could check on the contract, but it is not relevant to this discussion.

      • You definitely need a better lawyer…

        A competent property lawyer would have been able to advise you way better.

        "Have you got building insurance? I said no of course, because I haven't settled on it.
        My lawyer said the once I won an auction, it is my property, and I have to settle on it, no matter what."

        So many red flags coming out of this lawyer of yours…

    • +16

      Holy moly.

    • +50

      That's a ridiculous law. What's stopping me from signing a contract to sell my house then busting out the sledge hammer and seeing how many walls are actually needed to be structurally sound?

      • Nothing apparently- I didnt really dig that deep into it and assumed suncorp is a reliable source on the matter?

      • +28

        At settlement, the property still needs to be in the same state as it was when the contact was signed (except for fair wear and tear). The law doesn't allow the owner to trash the property after the contract.

        If the damage was deliberate or negligent the buyers insurer would come after you for costs, police might charge you for criminal destruction of property. If the house became unfit for habitation then the buyer can terminate the contract and sue for cost.

        But yes, it is silly as it doesn't make sense that someone would be denied access to a property that they are responsible for.

        • +2

          Most buyers don't get insurance at the fall of the hammer. Most will get the insurance at settlement which is already too late.

          • @drfuzzy: It varies from state to state, drfuzzy, because who effectively wears the cost of damage between sale and settlement varies from state to state. Where the seller is liable they will typically be covered by their existing home insurance. Where the buyer is liable they can usually get insurance at the fall of the hammer, and if properly advised do.

      • +19

        The buyer can sue the person that damaged the property.

        It's basic common law.

      • I would imagine the police

      • So go to prison for criminal vandalism?

      • +5

        There are actually terms that could be used against you in the contract for this.
        E.g.

        8.3 Seller’s Obligations After Contract Date
        (1) The Seller must use the Property reasonably until settlement.
        The Seller must not do anything regarding the Property or Tenancies that may significantly alter them or result in later expense for the Buyer

        You would be in breach and therefore they could take an action for damaged, termination of contract etc.

        In addition to common law and possibly criminal law remedies.
        So, quite a lot actually stops you, (if not your moral compass and logic)

        • +2

          how did you get hold of OP's sales contract?

          • @tonsta: 90% of house and land contracts in each state are the same - standardised templates

      • -1

        Nothing stopping you. The house is actually yours to keep and remove.

    • Therefore, if there’s damage to the property after 5pm the next business, the buyer is responsible for covering that damage.

      But in this case he knows exactly who caused the damage right? So he can bill the previous owner for the repairs surely.

      • bill the previous owner
        What if the previous owner doesn't live in the region/state anymore ? or even worse fled to overseas?

      • It seems to be an accident. But I'm not certain if this is up for debate either.

        If I have candle and accidentally let it burn the house, is it an natural disaster accident or is it my fault?

        If it is an accident like natural disaster, will the vendor able to force the sale?

        • That's not a natural disaster, that's an accident by the owner. They better hope that this is covered as the standard cover often doesn't include accidental damage, you have to tick that extras box or go for the plus cover.

    • In qld the only way you can avoid settling and cancel is if the house becomes unliveable. A good solicitor will know the rule here. Other than that you must settle and then sue the seller for damages, which I would be doing.

      Other states I don’t know

    • but it’s recommended that buyers get insurance from the time the seller signs the contract, just to be on the safe side.

      Thanks btw, do you know why it says to buy insurance anyway?

      I'm just hoping its not because of auction

      • +2

        Buying your own insurance is security for you. 1-2 months isn't that expensive compared to say, stamp duty.

        In NSW you should have insurance start at settlement at a minimum. It is recommended to have it in place from date of signing contracts, but ask your lender, solicitor and maybe real estate agent.

        Reasons. You can sue a previous owner for damages between contact and settlement, but they may not be able to pay.

        Avoids long waiting periods for insurance claims, previous owners lacking insurance, dying, bankrupts, etc. If owning is selling because they have debts, you won't be first in line to claim.

        Underinsurance is a problem. An owner may find their $500k evaluation from a decade ago isn't enough to cover a knock-down rebuild, or they don't have flood insurance.

        TL:DR you get insurance for exactly your (rare) situation.

  • +89

    My lawyer said the once I won an auction, it is my property, and I have to settle on it, no matter what.

    No, what your lawyer said was "I'm a shit lawyer. Time to get yourself a new lawyer…"

    This would be like buying a new car and the dealership smashing it and telling you "to bad, so sad, but you did sign a contract. It was yours from the moment you signed the contract"

    What if the house is being sold as part of a divorce settlement and the crazy partner drives a truck through the middle of the house and there is nothing left standing? There is no way that contract would stick in court.

    At this point I am not sure if this is a troll thread (Memeber since:) or it's actually legit. Just sounds too dumb that your own lawyer didnt just rip up the contract on your behalf as soon as they found out the house was damaged by fire/water.

    • +4

      I did exactly said that same car analogy. He said car is different. He said the contract states that once I won the auction, I must settle or forfeit 10%. The owner then can sue me in the future for the difference if they sell it for less too.

      I really want to fire this guy, but honestly I'm not sure if he is wrong or I could get someone better.

      • +85

        Fire him. Tell him OzBargain tells you that he's a sh*t lawyer.

      • +9

        He said the contract states that once I won the auction, I must settle or forfeit 10%.

        Is he getting some commission from the seller?

      • +6

        You should definitely cut and paste this story and use it as a google review for the "lawyer"…

      • +12

        Fire Lionel Hutz you lawyer and find someone else who is more competent

        • +28

          House burnt down.
          No buyer responsibility.

          House burnt down?
          No, buyer responsibility!

      • +3

        If this ever goes to court would you want the sh*t lawyer telling you the correct information or ozbargainer's advice when they last purchased a burnt house at auction?

        I understand it's the biggest investment in most peoples lives and having lots of unqualified opinions on your side will make you feel vindicated, but that not how the law works.

        Seeking a 2nd opinion and getting the right direction is probably more important than trawling ozbargains collective wisdom.

        The law is not what people expect sometimes.

      • Why don't you reach out to another solicitor for their view? Yours sounds absolutely trash, he's referring to the clause if you pull out of the contract, ignoring the fact the vendor has just made the place unliveable.

        For reference - my conveyancer told us if there was even a scratch on the wall to call her immediately on the morning of settlement in order to rectify costs

        • I guess one of the reason is because it is difficult to change halfway.

          Also my father used to teach me not to quit or fire or give up on people so easily, or they will give up on you.

          • @[Deactivated]: It's not difficult. Call another solicitor for a consultation session and discuss.

            You're not firing this original solicitor, you will still likely have to pay them a fee. They are doing you a severe disservice. To be honest I can't even tell if this is a troll or not, why would you not even be considering talking to someone else given the very firm feedback you've received in this thread

      • +14

        How the heck can this be right?

        I really hope the owner have insurance, they must have right?

        How the heck this information is not obvious to everyone, how the heck can the agent not tell me this, or my solicitor or bank or anyone?

        How the heck can it be assumed someone know that if I won auction it is my responsibility, and the owner can just burn it down, and not responsible for any of it.

        WTFFFFFFFFFFFFFFFFF?????

        • +5

          I really hope the owner have insurance, they must have right?

          No..

          How the heck this information is not obvious to everyone, how the heck can the agent not tell me this, or my solicitor or bank or anyone?
          How the heck can it be assumed someone know that if I won auction it is my responsibility, and the owner can just burn it down, and not responsible for any of it.

          Ignorance of laws is no excuse.

          • +1

            @pharkurnell: To be fair not everyone has to know the law inside and out. That is why they engage professionals in the field to advise them.

        • caveat emptor

          • +1

            @drfuzzy: Its not buyer aware this happened after the sale

        • +1

          The owner can't deliberately burn it down

        • +8

          My bank wouldn't even release the money until I had insurance sorted. It was literally the first thing they told me I needed for the money to go through.

          My solicitor checked everything and told me exactly when to get insurance before I made any offers.

          Your people giving you advice sucked. But you should be able to get out of it.

          • @johndoh89: You can't insure property that you don't yet own though.

            'Insurance sorted' just means you have insurance arranged to kick in on the date you settle.

            • @trapper: Yes you can insure an asset that hasnt settled yet. As johndoh89 said, the bank insisted on building insurance to start immediately before they approved the loan. I bought a house in late October last year and didn't settle until early december.

              Edit: important to point out that mine was private sale not an auction

        • I'm assuming you're getting finance, is the Bank still willing to lend against the damaged property?

          Victoria and New South Wales

          The buyer becomes responsible for any damage to the property from the settlement date. That means, technically, the vendor is responsible up until this point. However, you may find it useful to err on the side of caution and have your insurance arranged from the time the contracts are signed.

          • +1

            @Leanne59: what, so you have to claim on your insurance for someone else's negligence? yeah nah…. rescind the contract or negotiate a reduced purchase price based on the damage.

            • @UFO: Did you read my comment? It says the vendor is responsible for the insurance not the buyer. It varies from state to state but as this is NSW the vendor is responsible until settlement.

              • @Leanne59: Right you are… we are agree, but the last bit of your sentence suggesting insurance from exchange threw me a bit. Yes, I guess for the sake of a month or so why not get insurance, but really it's the vendors responsibility.

        • +1

          I remember buying my first house (QLD and not an Auction) and looking to get finance, the bank manager told me clearly that when we signed the contract, we needed to have home insurance as the buyer, and gave the example that if the house burnt down (by accident), we would be held liable for repairs. The bank (Heritage bank) offered this insurance free of charge for the length of the settlement (30 days). After settlement, we then were required to have 12 months home insurance as part of getting finance with them but could go with any insurance company.

          You've either missed this information when speaking to your lawyer/financial institution that is lending you the money, or, worst case, they haven't told you this. Either way, really unfortunate situation that you are in OP… I hope you get a good outcome!

          • +1

            @CrocDundee: NSW has different requirements that Qld in relation to when it is your responsibility for insurance.

      • +4

        When I bought a 🏠 in.an auction, I was refused insurance cover until it was settled.

      • You are right unfortunately for OP. He can try his luck in court and seek what a judge says.

      • +5

        You won the Auction, so technically the house is yours, as the lawyer stated. you MAY be able to negotiate a termination but will be hard and expensive - ALWAYS get insurance as soon as you have a contract or win an Auction.

        everyone is an armchair expert these days. when you win at an auction you have entered into an unconditional contract to buy the house. the house is not yours until settlement date. the house must be materially in the same condition on settlement day as when you won the auction. if there is a difference in condition, ie. flood/fire/alien stole it, then how it is rectified would depend on the conditions on your contract.

        in short, fire your lawyer and find someone who is competent

        • when you win at an auction you have entered into an unconditional contract to buy the house.

          No idea where OP lives I seem to remember in Vic that when I placed a deposit the settlement was contingent on inspection on the house being in same condition and theres was an inspection so that isn't always the case.

          And Im not sure how many contracts for anything are unconditional.

          • +1

            @Franc-T: unconditional in the sense there is no cooling off, rather than the "subject to finance" clause a lot of offers are made under. obviously property needs to be in same condition at settlement time as mentioned above

        • In QLD if you win the Auction the house is at the buyers risk from 5:00PM on the day of the auction…

          • @MechEng: fair enough but OP is in NSW so QLD laws are irrelevant and confuse matters further

            • @May4th: sorry did not realise that…
              However this is also the case in other states. I know NSW is not though

      • I dont understand the negs… but I know I am right…

    • Smells like a troll/fake post.

  • +59

    If it is yours after the auction then you can sue the owner for destruction of property (cost to reinstate it). It shouldn't be all one way.

    • +4

      Oh, I like this angle…

    • +1

      Let me ask this to my lawyer

      • +92

        Your new lawyer you mean?

        • +7

          It's actually probably wise to consult a different lawyer - as OP's lawyer may be liable for and could claim under professional indemnity insurance claim if they advised you wrong on the contract

      • +26

        If your lawyer needs random thoughts from the internet to be useful, you shouldn't be talking to them. You should be on the phone, trying to find a new lawyer.

    • +2

      Legend.
      And the original owner shouldn’t be living in it until settlement. That’s trespassing

  • +11

    I guess auctions are different, but a slightly similar thing happened to me in that there was a hail storm after the contract signing and before settlement. The pergola roof was smashed. The seller was responsible for fixing it. The conveyancer was able to withhold money from the settlement, with the agreement that if it wasn't fixed in 3 months we could keep it, and if it got fixed then the money would be released to the seller (the seller did get it fixed in about a month which was impressive considering the big demand for tradies after the storm).

    • +1

      Normal (private treaty) sales usually have a "subject to inspection" clause which auctions don't. Basically with auctions you are the new owner of the house no matter what.

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