New requirements from vendors, lenders creating ‘practical difficulties’
Certain lenders and vendors have been requesting more extensive documentation from SMSFs recently which is creating practical hurdles with property purchases, says a technical expert.
Speaking to SMSF Adviser, SMSF Alliance principal David Busoli explained that in the past if an SMSF wanted to buy a property using a limited recourse borrowing arrangement (LRBA) the SMSF trustee could go and sign a contract in the name of the bare trust and then worry about getting documents to the lawyers and everyone else with the necessary bits filled in.
However, Mr Busoli said there are a number of situations emerging more recently where the lawyers for the vendors will not accept a contract unless they’ve also seen the limited recourse borrowing documents all completed with the specific property address and description.
“This is the same of the banks that are giving approval on the loan, they want to see all of that stuff in place first which creates some practical difficulties,” he explained.
“There may be a situation where the finance won’t be approved or that the trustees decide to buy a different property and then they’ve had to go to all the expense or getting all the documents done to cover the particular property that they want to buy before they’ve even got approval for the finance.”
Mr Busoli said he has now seen a few cases of this and if the SMSF trustees don’t get the finance then they’ve paid to set up all the documents for nothing.
“If the [bank or lender] is not going to consider it until they’ve got an address that also makes it difficult for someone who’s not going to set up an SMSF until they’ve found the right property,” he said.
“They will need to have the SMSF, the bare trust and all the documents surrounding the actual details of the property that they want to purchase before they’re going to get consideration for finance.”
Mr Busoli noted that this is not a requirement for all lenders but has arisen with a couple of SMSF property purchases he’s seen recently.
“It makes it difficult because you’ve got to go to the expense of getting everything set up on the off chance that you get finance,” he said.