Homeowners could become "unwittingly embroiled" by the proposed foreign buyer ban and end up being left "high and dry", the Law Society says.
Photo: 123rf.com
The legislation - which is making its way through Parliament - would make it illegal to sell a house to anyone who is not a New Zealand citizen or resident.
Duncan Terris, who chairs the society's property law section, raised concerns with MPs at a Parliamentary select committee on Thursday afternoon.
He said MPs seemed to have overlooked a potential "flow-on effect".
For example, a person might receive an unconditional binding offer on his or her property and "trot out and buy unconditionally as well".
It might later be discovered that the original offer - "whoops!" - contravened the Overseas Investment Act.
That could result in "severe complications" as the original seller had already "gone and committed unconditionally for something else," he said.
He said the problem could crop up frequently as "regrettably clients don't come and see lawyers until after the contract's signed".
Under the legislation, the person responsible for conveyancing - usually a lawyer - would have to confirm that the prospective buyer met all the conditions.
Providing incorrect certification could result in the lawyer receiving a conviction and $20,000 fine.
Mr Terris said the due diligence required would "exponentially increase costs and delay".
The responsibility for certification would ideally lie with the real estate agent at the point the contract was signed, he said.
"In 99 percent of the situations, that is the first contact - that's where the responsibility should rest.
"It's too late when it gets to the lawyer to make these certifications and find out all these problems."
Real estate agents had a "financial and practical interest" in getting it right, he said.
"If they muck it up, they don't get paid."
The Overseas Investment Amendment Bill passed its first reading in December and is currently before select committee before returning for a second vote.