Shane and Louise signed a contract to purchase a property before the recent earthquakes struck, which was conditional (among other things) on them obtaining finance to purchase the property.

They then heard that insurers were putting a blanket hold on any new insurance in the Wellington region and thought they were going to have to cancel their contract based on their inability to get finance (as their finance was contingent on them getting insurance) which they were very disappointed about, as they loved this particular property.  They spoke to their lawyer who advised that there were ways around this, including taking over the vendor’s insurance policy as had been done in Christchurch after their earthquake.

All banks require insurance to be in place before they will lend any funds pursuant to a mortgage.  In the past, insurance was organised after confirmation of any finance condition in an Agreement for Sale and Purchase, but before settlement.

Given the recent changes from full replacement insurance to “sum insured” insurance and the subsequent earthquakes, many lawyers and mortgage brokers are now suggesting that purchasers organise their insurance as part of their finance condition in their Agreement for Sale and Purchase, to ensure that:

1. That they can actually get insurance (which in the current market may involve transferring the vendor’s policy as referred to above); and
2. The level of cover they are offered is sufficient to the bank.

Purchasers will therefore only confirm their finance condition once these criteria are satisfied.  This is to ensure they don’t get caught in a situation where the day before settlement the bank advises them that their insurance is not adequate and they therefore cannot draw their mortgage funds and consequently cannot settle their purchase.