During the purchase or sale of property, a settlement date will be determined for the transfer of property to take place on. But what actually happens at settlement?
Most people understand that ownership of the property will be transferred from the Seller to the Buyer, however there are several other parties involved, and various requirements to be met, for that to happen. These fall into two categories: Document Lodgement and Financial Settlement.
Document Lodgment
Landgate is the statutory authority responsible for real estate property and land information in Western Australia. Documents dealing with property must be registered with Landgate for settlement to be completed.
Removal of Encumbrances
Before the transfer can take place, any existing encumbrances on the property must first be removed. An encumbrance is a document registered against the property that prevents improper dealings with that property, such as mortgages and caveats.
The party that lodged the encumbering document must have it removed or provide their approval for the transfer to Landgate in the prescribed format so that the transfer can take place.
Some encumbrances (such as a mortgage) will have a debt associated with them, which will need to be dealt with during the Financial Settlement (see the relevant section below for more information).
Transfer
Once any encumbrances have been removed, the document for the transfer of title ownership from the name of the Seller into the name of the Buyer can then be lodged with Landgate.
Whilst lodgement of the transfer document takes place at settlement, it can be some time after settlement before Landgate provides confirmation that the transfer has been completed successfully and fully registered.
Incoming Encumbrances
Once the transfer has been lodged, any encumbrances for the Buyer will then be lodged.
For example, if the Buyer has obtained a loan from a bank or financial institute for the funds to purchase the property, then this will be when their mortgage document for the property would be lodged with Landgate.
Financial Settlement
If funds are to be exchanged between the Buyer and Seller for the transfer of the property, then a financial settlement will need to take place.
Source Funds
Funds being introduced into the financial settlement for the transfer are called source funds.
These are primarily funds provided by the Buyer for the agreed purchase price (minus any deposit already paid) and any additional fees and charges (more information in the relevant section below).
However, the Seller (or their representative) may have to introduce funds also, such as if the property is being sold at a loss and the remaining debt to their mortgage loan must be paid off at settlement for the bank or financial institution to allow the transfer to occur.
Disbursement Destinations
A financial settlement must be ‘balanced’ before settlement can take place, and this means that the total of all source funds introduced must also have an equal amount of disbursement destinations to match.
Some destinations for funds at settlement can be as follows:
- Mortgage loan payout to banks;
- Sale proceeds to the Seller;
- Stamp Duty to the Office of State Revenue;
- Professional fees to the settlement agents or lawyers;
- GST Withholding (if applicable) to the Australian Taxation Office; and
- Rates adjustments to the local council and water authorities.
Ready for Settlement
Settlement can only commence when both the transfer documents have been signed and are ready for lodgement, together with any financial settlement being balanced. This is commonly known in the settlement industry as being “ready-ready”.
If the settlement is being completed electronically via an Electronic Lodgement Network Operator (ELNO), then settlement will automatically commence at the scheduled date and time provided that everything is “ready-ready”. Electronic settlements usually take up to an hour to be completed.
Once completed, the transfer documents will have been lodged electronically directly with Landgate and funds will have been transferred to their destinations by Electronic Funds Transfer (EFT).
THE ABOVE CONTENT IS PROVIDED AS GENERAL INFORMATION ONLY. RWS SETTLEMENTS STRONGLY RECOMMENDS SEEKING PROFESSIONAL ADVICE ON THE SPECIFIC CIRCUMSTANCES OF YOUR SETTLEMENT.