Property Lawyer Secrets: Did You Know That Debt Can Transfer to You?

When you buy a property, you expect that the only thing you are purchasing is the home itself — not someone else’s debt. Unfortunately, many first-time buyers and even experienced investors are unaware that certain types of debt or encumbrances can attach to a property and transfer to the new owner upon settlement.

Understanding these hidden risks is crucial before signing a contract. In this article, we uncover the lesser-known legal truths every buyer should know and explain how a property lawyer or conveyancer protects you from inheriting someone else’s financial liabilities.

The Hidden Side of Property Purchases

Property transactions involve far more than the simple exchange of money for real estate. When you purchase a home, you also inherit the property’s legal history. Outstanding rates, charges, and encumbrances that are attached to the land itself — not the person — can become your responsibility after settlement if they are not identified and cleared in advance.

Examples include:

• Unpaid council rates or land tax
• Outstanding water usage or infrastructure fees
• Body corporate levies (for apartments or townhouses)
• Caveats or mortgages that have not been properly discharged
• Easements or covenants affecting your right to use the land

Without a detailed title search and proper conveyancing checks, these issues may go unnoticed until it is too late.

How Debt Can “Stick” to a Property

Many people assume that personal debt always stays with the previous owner. While this is true for most types of loans, property-based debt operates differently. Certain obligations are secured against the land itself rather than the individual.

For example:

• Council Rates: Local councils have statutory powers to recover unpaid rates directly from the property, regardless of who owns it at the time the debt is discovered.
• Water and Utility Charges: In some jurisdictions, water suppliers can hold the current property owner responsible for unpaid usage or service connection fees.
• Land Tax: If a property is subject to land tax and the seller has not paid, the liability can be enforced against the property’s new owner.
• Body Corporate Levies: For apartments and townhouses, any outstanding strata or owners’ corporation fees can follow the lot to its next owner.

A professional property lawyer ensures that all these liabilities are disclosed, adjusted, or cleared before you take ownership.

Why Pre-Purchase Checks Are Essential

Before contracts are exchanged, your conveyancer will order a series of statutory searches and certificates to uncover any existing debts or encumbrances. These include council rate searches, land tax clearance certificates, and utility authority checks.

These searches confirm:

1. Whether the property is subject to any outstanding charges
2. Whether all taxes and rates are paid up to date
3. Whether any third-party rights or interests exist over the property
4. Whether there are restrictions on how you can use the land

These investigations may sound routine, but they are the cornerstone of risk management in conveyancing. Missing even one search can expose you to thousands of dollars in inherited debt or limit what you can legally do with your new property.

How a Property Lawyer Protects You

A property lawyer or licensed conveyancer does more than just “fill in forms.” Their role is to act as your legal safeguard throughout the entire process.

Here is how they protect you:

• Identifying Risks Early: By reviewing the contract and conducting pre-purchase searches, they identify financial, legal, or structural risks that could affect your ownership.
• Negotiating Adjustments: They ensure that all rates and taxes are apportioned correctly between buyer and seller at settlement so you do not pay for periods before you owned the property.
• Ensuring Clear Title: They verify that the property’s title is free from encumbrances, mortgages, or caveats before transfer.
• Advising on Contract Clauses: They explain your rights and obligations under the contract and may negotiate amendments to protect you from hidden liabilities.
• Handling Settlement: They liaise with the seller’s representative, banks, and authorities to ensure funds are distributed correctly and any outstanding debts are cleared at settlement.

With a trusted conveyancer managing your transaction, you can proceed confidently knowing that your new home will be yours — debt free and legally secure.

Real-World Examples of Debt Transfer

To understand how real this risk can be, consider these examples commonly seen in practice:

Example 1: Unpaid Council Rates
A buyer purchases a home, believing all rates are paid. Months later, the council sends a notice demanding payment of $2,500 in overdue rates from the previous owner. The buyer has no choice but to pay, as the debt is registered against the land, not the seller.

Example 2: Unregistered Mortgage
A seller’s previous lender fails to properly discharge a mortgage. The new owner’s title remains encumbered, preventing them from refinancing or selling. A property lawyer would have identified this before settlement and delayed completion until the title was clear.

Example 3: Body Corporate Arrears
An investor purchases an apartment in a strata complex. The seller was behind on levies, and the body corporate recovers the arrears from the new owner. A conveyancer’s pre-settlement search would have detected this debt and ensured it was paid before completion.

Each of these situations can be prevented with proper legal advice and careful conveyancing.

The Law Is Different in Each State and Territory

Another common misconception is that property law is uniform across Australia. In reality, every state and territory has its own legislation governing property transfers, settlement procedures, and the treatment of unpaid debts.

For example:

• In the ACT, unpaid rates and land tax can remain attached to the property.
• In NSW, body corporate levies and some utility charges can transfer to the new owner.
• In Victoria, land tax clearance certificates are mandatory to ensure there are no outstanding liabilities.

Because of these variations, it is vital to work with a conveyancing firm familiar with the laws in your state. Velocity Conveyancing operates across the ACT, NSW, and Victoria, ensuring consistent and compliant advice for every client.

How to Protect Yourself Before You Buy

If you are planning to buy a property, take these essential steps before signing any contract:

1. Engage a property lawyer early. They will review the contract and explain any clauses that may expose you to risk.
2. Request a contract review before making an offer. Particularly for auctions or pre-auction offers, where you may need a solicitor’s certificate waiving your cooling-off period (s.17 in the ACT or s.66W in NSW).
3. Obtain pre-purchase searches. This ensures there are no outstanding debts, restrictions, or encumbrances on the title.
4. Confirm finance approval. Make sure your lender has issued unconditional approval before you exchange contracts.
5. Be wary of “cheap” conveyancing quotes. Some providers exclude critical searches or add hidden costs later. Look for transparent pricing with all disbursements clearly itemised — as Velocity Conveyancing does.

These steps will help you avoid costly surprises and ensure a smooth, stress-free purchase.

Why Buyers Trust Velocity Conveyancing

Velocity Conveyancing has been helping Australians buy and sell property since 1968, with offices throughout the ACT, NSW, and Victoria. Our legal team specialises exclusively in residential conveyancing, and our transparent fixed-fee structure means there are no hidden surprises.

We also guarantee to beat any competitor quote and provide upfront itemised fees, so you know exactly what you are paying for from the start.

Our process is streamlined for convenience: you can request an obligation-free quote, receive a complimentary flowchart explaining the process, and enjoy clear guidance from start to finish.

Ready to Buy? Protect Your Investment Today

Buying a home is one of the biggest financial decisions you will ever make. Do not let hidden debts or overlooked legal details turn it into a costly mistake.

Whether you are purchasing in the ACT, NSW, or Victoria, Velocity Conveyancing’s experienced team will ensure your transaction is smooth, compliant, and secure from the first review to final settlement.

Get a free quote today or call 1300 483 562 to speak with a friendly property lawyer who can guide you through the process.