Alternative Means of Funding the Deposit – Deposit Guarantee Scheme
The purchaser can give the seller a deposit guarantee from an insurance company instead of offering the seller a cash deposit. If the seller agrees to the proposal of accepting a deposit guarantee from an insurance company from the purchaser, then this clause must be included in the contract. In such a case, the purchaser pays a single premium to the insurance company against which, the insurance company provides a guarantee to the seller for the amount of deposit. If the buyer fails to complete the contract, then the seller can forfeit the deposit and the insurance company pays the seller the amount of the deposit. Thereafter the insurance company recovers the remaining amount from the purchaser. This scheme is generally used when the purchaser enters into a related exchange of contracts on a related sale. Therefore, it is usually not available to first time purchasers. Generally, most sellers would like to have cash security deposit rather than a claim against an insurance company. The seller might also have a dependant purchase and the deposit may be financed from the purchaser’s cash deposit.
