Conveyancing Tips - Buying a Repossessed House?

by Tony Lilleystone, Legal Manager
Monday 8th of July 2013 01:53:03 PM

Many see buying a Repossessed property as a cheap way of acquiring a house.

Be warned - the Conveyancing process for such property can throw up unexpected problems for buyers, and significant risks. It is therefore advised that you instruct a Conveyancing Solicitor with plenty of experience with repossession cases, who can steer you through the process.

Instructing a Fridaysmove Conveyancing Solicitor will grant you access to an expert property lawyer to guide you every step of the way.

Repossessed houses are usually advertised as such, and there are numerous websites with details of such properties for sale. Many highlight that prices are lower than full market price. This is not necessarily the case, and buyers should compare prices on similar properties in the neighbourhood if possible.

The lender has to obtain possession of the property, so they will have to take legal steps to evict the owner. Once they have done that they can enter the property, change the locks, and put it on the market. Repossession properties are frequently sold by auction, especially when selling agents have previously failed to find a buyer.

Making an Offer

If you make an offer for a repossessed property the selling agents will have to report your offer to their client. Lenders must show that a fair market price has been offered, so agents are required to advertise the amount of your offer in case anyone wants to make a higher offer. That does not apply to auction sales, since it will be assumed that the highest bid represents the best price that could be achieved.

Please Note: Conveyancing for a Property Auction purchase carries its own set of specialist issues. You should instruct a Solicitor to undertake a pre-auction report on a property on which you intend to be before the date of the auction.

Valuation issues and Survey

It is likely that repossessed homes will not be in 'tip-top' condition, and will probably have been left empty for some time. This may be seen as a bonus to buyers since it will affect the price. Nevertheless, bear in mind that any valuation will only be on the basis of the current condition of the property, and surveyors often down-value when the market is depressed. Especially if you are thinking of redecorating and repairing a property to resell it at a profit, you should make sure that you will have sufficient funds available to carry out proposed works. Furthermore, Conveyancers can identify issues which may add to this additional cost.

Unless buying at auction it is probably not necessary to have a building survey carried out until an offer has been accepted. A proper inspection should be carried out before making an offer, to identify any obvious defects. It is possible that furniture and other effects belonging to the owner may still be there, and you will need to check that if they are going to be removed. It can be expensive to have unwanted furniture removed.

Preliminary Enquiries

The lender selling the property will not have any knowledge of the property, so will not be able to provide any information as would normally be expected from a seller. If you want to find out anything you will have to make your own enquiries - this is very much a case of "buyer beware".

Contract and Searches

When a sale has been arranged the lender will instruct their Conveyancing Solicitors who will send contract and papers to your Solicitors. Lenders often appoint one firm to carry out all their repossession sale work, and such firms will handle the work on a bulk basis. This means that they will issue a contract in a standard form and will not issue replies to the standard forms of enquiries which private sellers will supply. In other words, you are offered a "take it or leave it" package. Almost invariably the sellers will impose a tight time limit for exchange of contracts once the draft has been sent to your Conveyancing Solicitors, so you need to make sure that your solicitor does not delay carrying out local and other searches.

Mortgage applications

If you require a mortgage you will also need to ensure that your application is processed quick and, in particular, that the survey can be carried out without delay. Since the lender selling the property does not actually occupy it, the surveyor will need to know who he has to contact to arrange an inspection - this will usually be the selling agents, but make sure that correct details are included on the mortgage application.

Flats - Obtaining Management Information

A major difficulty for buyers of repossessed leasehold flats is that lender's solicitors will rarely have obtained management information from the freeholders beforehand. Indeed they will often be unwilling to obtain such information even when the sale has been agreed. Conveyancing Solicitors will always press for the necessary information to be obtained, especially when their own client is obtaining a mortgage and it is required under the solicitors practice guide issued by the Council of Mortgage Lenders.
It is not usually possible for purchasers to obtain the necessary information direct. Most landlords and their managing agents refuse to correspond with anyone other than the flat owner or a mortgage lender of whom they have notice. They also require fees to be paid for supplying the information, which the seller should pay as part of the sale expenses.

The information required from landlords will include details of any service charge arrears, which are to be expected when a borrower has defaulted on the mortgage. Any arrears will have to be settled before a change of ownership can be registered, and buyers do not expect to have to pay a large bill for charges which should have been paid by the previous owner.

If a flat is in a very small block where individual flat-owners are responsible for carrying out repairs then the absence of information is not so much of a problem. But where an apartment is in a large block where substantial service charges would be anticipated buyer's Solicitors need to make it clear that the seller's solicitors must obtain the information at their client's expense.

Other matters on which information from landlords will be required include details of property insurance, and whether any major repair works are in hand or proposed. Especially in the case of ex-council properties, the cost of major works can be substantial and an incoming buyer may find himself saddled with a bill for thousands of pounds.

Insurance risk on Exchange

Once contracts are exchanged the insurance risk will often be passed to the buyer (except on leasehold flats where the freeholder insures the building) so you are advised to arrange buildings insurance immediately on exchange. Insurers may not be prepared to cover properties which are unoccupied, so you should make sure that your broker knows about this; sometimes they can arrange special unoccupied property cover for the short period between exchange and completion. Alternatively your Conveyancing Solicitor may be able to arrange simultaneous exchange and completion to avoid this problem.

Other loans on the property

A mortgage is known as a "secured loan" because the house is offered as security for the loan, and lenders therefore have the ultimate right to sell if the owner defaults. The mortgage is registered against the title to the property at the land registry, so that anyone looking to buy the property is aware of its existence. However a former owner may have taken out more than one secured loan on the property, or have court judgements registered against them which will also be registered against the title. When a first mortgage lender sells, provided that the proper procedure is followed, the land registry will register the new owner and will remove all charges previously registered against the property.

A buyer does not need to worry if the price he is paying is actually less than the amount owing on the mortgage - once the property has been sold the lender will either have to write off any shortfall or try and sue the previous owner.

No lender can take any action against you or the property once the sale has been completed provided that your Solicitor has properly registered the transfer and made sure the land registry has removed previous charges, but you may receive letters addressed to "the occupier" demanding payment or debt-collectors calling at the property. If this becomes a problem, they should be referred to your Solicitor.

Our Conveyancing Solicitors will be able to advise you regarding the purchase of repossessed property, and can assist with the instruction of a Local Solicitor, call our team of specialists on 0330 650 0286.