Mr Wong and his wife had just returned to Hong Kong after living in Canada for some time. They found that property prices in Hong Kong had adjusted downward and thought it a good opportunity to buy a flat. On the recommendation of an estate agent, they inspected and decided on a unit owned by Company A. The land search record supplied by the agent showed that the flat had been re-mortgaged many times and up to that time there were still three undischarged mortgages. A director of Company A, who negotiated with Mr Wong on behalf of the company, claimed that the company was financially sound and it was only part of the company's normal operation to obtain loans using the flat as security.
As the price asked by Company A was very attractive, Mr Wong thought that the opportunity was not to be missed. So he signed a provisional agreement for sale and purchase and paid a deposit. Before completion, Mr Wong was informed by his solicitor that, as confirmed by the mortgagee bank, the aggregate liability resulting from the several mortgages was $1 million more than the price of the flat. Mr Wong immediately contacted the vendor's solicitor, hoping to have assurance that the vendor would be able to fully repay the bank and complete the transaction. However, the vendor's solicitor replied that he was unable to contact the director in charge of Company A. On the date of completion, the situation remained the same, and ultimately Mr Wong did not get the flat. The lawsuit against Company A to recover the deposit is still in progress, but Mr Wong's chance of getting back the full amount appears slim.
The above case is a clear example of a property with negative equity. The market downturn aside, if a property is re-mortgaged a number of times to obtain finance for business, the amount secured by the property may exceed the value of the property, thus making it a property with negative equity. Company A, the vendor, was unable to make good the difference between the redemption money and the property price. Mr Wong became the victim. As a matter of fact, Mr Wong, as purchaser, should have been especially careful after seeing so many undischarged mortgages in the land search record. He should have requested that the deposit be stakeheld by solicitors, and a clause be added to the agreement to the effect that the deposit would only be released to Company A when it could prove that the balance of the purchase price would be enough to cover the redemption money. That way, Mr Wong could at least have avoided losing the deposit.
|