The latest earthquakes have not just caused movement to the landscape but have also caused movement with regard to bank's lending requirements in some regions around New Zealand. Banks are understandably cautious about advancing funds on properties that may have sustained damage in the most recent earthquakes.
ANZ Bank (ANZ) has provided solicitors with information setting out various zones around the country and additional requirements as a pre-requisite for drawdown of funds. We expect similar requirements from other lenders and insurers.
ANZ have created two zones and temporary requirements for lending in those zones because some insurers have not been issuing any policies in these areas. A map of these areas is shown below.
For properties in Zone One a builder's report is to be obtained. Clients will need to check with their insurer and confirm to the ANZ that the property will be fully insured on settlement. The policy needs to be checked to confirm that it has no exclusions, limits, or stand down periods for earthquake or other natural disaster damage – these may not always be obvious on the customer's policy.
Properties in Zone Two will need to complete a pre-purchase inspection to check that there is no damage. If there is visible damage, the ANZ may ask for a builder's report. Zone Two customers will also need to provide confirmation of being fully insured on settlement. If the property is damaged, ANZ is assessing on a case by case basis whether they will draw down the client's loan. It is important to note that these requirements will necessitate some form of inspection and may cause delays in settlement.
We recommend to all clients that as part of their due diligence that they obtain a builder's report to check that the property has not sustained any damage.
Some banks are also asking solicitors to confirm that there is no damage to a property before drawing down funds, or providing approvals – we are also seeing approvals conditional on this. As solicitors we cannot advise a bank (or any other institution) that a property has not been damaged, even if our client has advised us of this.
It is also important to remain aware of the solicitor's obligations to the bank. We act for the bank as well as the client, and we need to ensure compliance with the bank's letter of instructions and our solicitor's certificate to the bank.
It is therefore important to ensure that claims are lodged by the owner with EQC and their insurer (where applicable) at the time of any event for any potential damage. There may be structural issues that are not apparent from mere visual non-invasive inspection. Therefore it is prudent for an EQC claim to be lodged for the November 2016 event by a vendor, and assigned to the purchaser upon settlement. A failure to lodge a claim from the outset could result in a time-bar for any future claim. Furthermore, once the vendor has settled there will be little incentive for their co-operation.
It is important that time is allowed in areas affected by earthquake damage to sort through any issues arising, such as delays with obtaining finance and insurance. Having extended time frames for confirmation of these conditions will help avoid issues around confirmation or an inability to settle, which disadvantages both parties.
The team at Cavell Leitch are happy to assist with any concerns and we will keep you up to date with the latest information and changes as they occur.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.