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Property logjam of concern in Canterbury

(PR.co.nz) The New Zealand Law Society’s Property Law Section says a difficult situation is emerging with property settlements in the area affected by the Canterbury earthquake, and it may need government intervention.

Property purchasers and sellers, lawyers, insurance companies and banks are caught in a logjam-type situation which is causing additional stress to people who have been coping with the aftermath of the earthquake.

Property Law Section Chair Chris Moore said today that the Section had already written to the government, to ask if it can assist in breaking the paralysis.

“Understandably the banks who are lending to people in the middle of a property purchase are requiring that the property is insured,” Mr Moore said.

“Many insurance companies are reluctant to provide any insurance in the Canterbury region at present, and some have said they will adopt a 21-day stand-down period from the time a policy is written. Obviously this leaves a property owner without any earthquake insurance in the event of further damage, and is unacceptable to the banks, which won’t advance funds.”

Mr Moore said the result was that people who had commitments to purchase properties are unable to proceed.

“The other side of the problem is that vendors who have purchased another property in anticipation of settlement are unable to proceed with that purchase and could well be incurring penalty interest – which is usually at quite a high rate,” he said.

“While it is possible for that penalty interest to be passed on to the people who are committed to purchase the vendor’s property, obviously they are unhappy about that.”

Mr Moore pointed out that while the problem is particularly acute in the earthquake-affected region, it is having an impact on the rest of the country. He said people in the region were involved in purchases in other parts of New Zealand and vice versa.

Mr Moore said that after communicating its concerns to the government, the Property Law Section was hoping that the emergency legislation passed yesterday might enable insurance for property with little or no damage to be written by insurance companies so that they could satisfy the banks’ requirements.

“The new legislation gives the Minister power to deal with a number of administrative matters, but does not resolve this situation,” he said.

Mr Moore said the Property Law Section’s suggestion was that the government should provide some underwriting assistance to the insurance companies in marginal areas or where there was uncertainty. Additionally, the section has been advising members that they should consider the assignment of existing policies where there is sufficient cover.

“We are also concerned that the banks and insurance companies should be fully aware of this situation and endeavour to act reasonably and in acknowledgement of the special issues raised by this extraordinary event,” he said.

The Property Law Section is encouraging anyone contemplating buying or selling a property to contact their own lawyers before signing any contracts as additional clauses might now be necessary.

Media Release on 16 September 2010 from New Zealand Law Society

 



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