28 Jun, 2013/ by Homeward Legal /Buyer
If you are buying a 'repossession' or 'repossessed' property, the conveyancing work will be broadly the same as when buying a property direct from the owner.
But there are some important differences, and it is worth looking for a choosing a conveyancing solicitor who is, at the very least, used to handling such cases.
Are lenders always looking for a fast and cheap sale?
Repossessed properties are sold by mortgage lenders when the owner has been unable to meet the repayments.
They are often seen as a way of buying property cheaply, since it is assumed that the lender will want to get rid of the property quickly and recover the mortgage loan, rather than holding out for the best price.
But it should not be taken for granted that a repossession property is going to be a bargain. Whether a property is being sold through agents or by auction, it is always a good idea to have a proper building survey and valuation carried out. This will not only bring to light any defects with the building, but give an independent assessment of its value.
The key difference when buying a repossessed property
One of the major differences between Conveyancing for a repossession property and an ordinary purchase is that the seller, i.e. the mortgage company, will be unable to give any information about the property. As in all property purchases, the basic rule is ‘caveat emptor' or ‘buyer beware' - in other words, buyer must look out for themselves.
On a normal purchase the buyer's Conveyancing Solicitor will expect to get information on matters which the seller would know about because they have occupied the property - for example, whether any alterations have been carried out, or whether the property has suffered from flooding. Clearly a lender will not have this sort of information available.
A buyer's Conveyancing Solicitor may be able to obtain some information from other sources, but at the end of the day it is likely that the buyer will not be as well informed about the property as would otherwise be the case.
Buyers should inspect a property themselves before buying it.
This might seem like obvious advice, but it seems that some buyers are content to rely on an agent's description and pictures on a web-site. It is to be expected that a repossession property will not be in good decorative order, but the buyer should check that it has been cleared of the original owner's possessions and any rubbish has been removed.
If a property is being offered for sale by auction then it is essential to have a Solicitor look at the auction particulars and property title beforehand, as well as having a survey done. Once an auction is concluded a contract is created, so the successful bidder will be bound to complete the purchase and cannot withdraw.
Generally speaking the actual transfer of title will not present any particular problems.
A mortgage lender will have power to sell the property in its own name. A transfer under the statutory power of sale will override the original owner's title, and the buyer will acquire title free from the mortgage.
The buyer does not have to worry whether the sale price will clear the mortgage, that is a matter between the mortgage company and the original owner.
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Other debts on a repossession property should not worry a buyer
It is sometimes found when inspecting the property title before completion that in addition to the main mortgage there are other charges or debts registered against the property. It may even be discovered that there are bankruptcy notices registered against the owners.
Fortunately none of these matters need be of any concern to a buyer, as they are also overridden and removed from the title when a mortgage lender sells. However buyers may sometimes find that they receive letters or calls demanding payment of the previous owner's debts. Should this happen the callers should be referred to the buyers' Solicitors, who will explain that the debts are no longer secured on the property and the buyer is not responsible for them.
Potential difficulties when buying a repossessed flat
Particular problems can arise with leasehold flats. A buyer's Solicitor will need to see information about the management of the building, such as service charge accounts and a copy of the buildings insurance policy. If a buyer is getting a mortgage, the lender will insist upon this being done.
It is usual practice for the sellers' Solicitors to obtain such information from the freeholder or managing agents, but they will charge for it. Some lenders when selling repossession properties are reluctant to obtain this information, but it should be insisted upon.
It is often the case that the original owner will not have paid any ground rent or service charges for some time. The mortgage company should discharge any amounts owing up to the date of completion. If this is not done there may be problems in getting the freeholders or managing agents to accept notice of the transfer of ownership, and the buyer will have to settle any arrears.
You may end up paying more up front and perhaps taking a risk
Another difficulty is that annual service charges are usually calculated on the basis of projected expenditure for the forthcoming year, and if actual expenses exceed the estimate the freeholder will have the right to recover any balance from the current owner of the property.
Since at the time of completion it will not be known whether any such balancing sum will become payable, it is common practice for some money to be retained for a time by one of the Conveyancing Solicitors - if anything is payable when the full accounts are prepared, it can be paid out of the retention, otherwise the money is sent to the seller.
Mortgage companies will not as a rule agree to any such retention, so a buyer must take a chance. If service charge accounts from previous years indicate that balancing payments are usually required, the buyer might suggest a small reduction in the price to allow for this. Otherwise the buyer will have to accept that he will have to pay up if a demand is received, even if this partly relates to a period when he did not own the property.
If you are considering buying a repossession property Homeward Legal can ensure that you get the best legal advice. The costs will not be any higher than for an ordinary purchase, and you can be sure your conveyancing to the highest standards by a qualified Solicitor who will have handled many similar purchases.
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