The bank staff member verbally approved the $150,000 top up to her mortgage in an unrecorded phone call. There was no follow-up in writing. Carmel understood the loan approval to have no conditions attached, and on that basis she made an unconditional offer of $1.32 million for the house, an offer that was accepted and required a deposit of $66,000 payable immediately. The bank’s understanding was that the loan was subject to sale of her existing property.

The next day, the staff member emailed Carmel to ask how the tender went. She replied that she had won it and needed $66,000 for the deposit. The staff member congratulated her and asked for a copy of the contract and details of her parent’s cash contribution, which Carmel supplied. The staff member emailed Carmel back to say: “I note that there was no condition regarding the sale of your existing property. Finance is approved based on you using the sale proceeds from your home to put towards the purchase.”

Four days later Carmel emailed a further request for the deposit to be credited to her account. The staff member replied that the credit team wanted her to use the money her parents were giving her for the deposit “given your finance was approved based on the sale of your house and that is yet to be confirmed”.

Carmel replied that her parents’ funds were not yet available and asked the bank to advance the deposit funds from her approved top up. The bank refused to do so until she sold her house. The bank said Carmel could apply for a bridging loan but that they were “high risk” and there was a chance the bank would decline her application. She would have to supply financial details about her business as part of an application for bridging finance.

Carmel wrongly thought that applying for bridging finance would put her approved lending at risk, so she instructed the bank to leave things as they were, and she would find a way to raise the deposit. Her efforts to find an alternative source of funds for the deposit were unsuccessful. 

Thirteen days after Carmel won the tender, the sellers cancelled the agreement because Carmel had not paid the deposit. They held her liable for the difference between her price and the one they eventually got, plus costs – a total of $140,000. Carmel negotiated a settlement with them of $113,000.

The bank and Carmel agreed there had been no discussion about where the money for the deposit would come from. The bank assumed it was from her parents but didn’t check. Carmel said the bank should have known from her finances that she would need funds for the deposit but didn’t discuss this with the bank. She said the bank knew her financial position and should have proactively offered her finance for the deposit. She said she experienced significant emotional stress as a result of the bank’s actions.

The bank eventually approved a loan of $85,000 so Carmel could pay the sellers.

Our investigation

We concluded the bank was at fault by failing to:

• put the loan approval in writing
• discuss with Carmel where the money for the deposit was coming from

However, Carmel should have taken reasonable steps to try to minimise her loss by asking the bank for bridging finance. We therefore concluded Carmel and the bank should share the loss.

Outcome

Carmel and the bank agreed to apportion 65 per cent of the $113,000 loss, or $73,450, to the bank. The bank also offered Carmel $10,000 for inconvenience, bringing the total payment to Carmel to $83,450.