Financing a Bermudian Purchase with a Foreign Buyer and a Stalled Mortgage
A Canadian buyer, Mr. Leclair, agrees to purchase a condominium in Paget for $1.45 million. He is not a Bermudian and requires a licence to acquire residential property. His bank has issued a mortgage commitment for 60 percent of the purchase price, but the commitment is conditional on a satisfactory appraisal and on the buyer obtaining the licence before drawdown. The appraisal comes in at $1.32 million. The seller, a local developer, refuses to reduce the price and demands that Mr. Leclair waive his financing condition. The licence application has been submitted but not decided. Closing is in three weeks, and the contract requires a 10 percent deposit, already paid, to be forfeited on default.
1. What are the consequences of the low appraisal for Mr. Leclair's financing, and what options does he have?
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The bank committed to 60 percent of the $1.45 million purchase price, or $870,000, but the appraisal values the property at $1.32 million. Lenders typically advance against the lower of price or appraised value, so the bank may lend only 60 percent of $1.32 million, or $792,000, a shortfall of $78,000. Mr. Leclair must find that difference in cash, renegotiate the price, or obtain alternative financing.
His options include:
- Requesting a price reduction to the appraised value, though the developer has refused.
- Increasing his down payment by $78,000 if he can fund it.
- Seeking a second charge or unsecured facility, usually at higher cost.
- Challenging the appraisal with comparable sales evidence.
- If none works, relying on his financing condition to exit, but only if the condition is still live and properly drafted.
2. Should Mr. Leclair waive his financing condition as the developer demands?
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He should not waive it without a firm alternative. Waiving the condition makes the contract unconditional, and if the bank then lends only against the appraised value, he must cover the shortfall or default. Default would likely forfeit the 10 percent deposit, $145,000, and expose him to further damages.
The developer's demand is pressure, not a legal entitlement. Mr. Leclair should keep the condition in place, provide the appraisal to the developer, and propose a price adjustment or an extension while he arranges funds. If the condition has a deadline, he should seek a written extension before it expires. He should also confirm whether the licence is a separate condition; if not, the contract may be unenforceable or require amendment because a non-Bermudian cannot complete without it.
3. How does the outstanding licence application interact with the financing and closing timeline?
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The mortgage commitment is conditional on the licence being obtained before drawdown. If the licence is not decided by closing, the bank will not advance funds, and Mr. Leclair cannot complete unless he has alternative cash. The licence is also a legal precondition to his acquiring the property, so closing without it is not a viable workaround.
He should:
- Confirm with the relevant authority the expected decision date and whether interim confirmation can be provided.
- Ask the bank whether it will accept evidence of a pending application as satisfaction of the condition, though most will not.
- Negotiate an extension of the closing date with the developer, tied to the licence decision and the financing.
- Ensure the contract makes the licence a condition precedent, not merely a best-endeavours obligation.
If the developer refuses an extension and the licence is delayed, Mr. Leclair faces forfeiture risk that could have been avoided by drafting the contract around both the licence and the appraisal.