Q Having waited for prices to drop I have now decided to buy a property. I understand that this property may have been repossessed by a Bank or that the seller might be a Receiver appointed by the Bank. I have heard that this will make the transaction more complicated than normal. Is there anything that I should watch out for over and above what needs to be checked in a normal property purchase?
A Property transactions are notoriously stressful events even for a seasoned buyer. Buying a property for the first time can be even more stressful and buying a property in negative equity can be even more frustrating and stressful again! Here are a few useful tips which should at least prepare you for what is involved.
Solicitor- The first choice you will need to make is whom to engage as your Solicitor to act in the purchase and mortgage transaction. Remember, this may be the biggest financial decision of your life so the decision as to whom to engage as your Solicitor is a serious one. Also remember that this is a service and not a product and service levels can vary dramatically from firm to firm. Do not make your selection based on the lowest price only. Ideally you should select a firm with a good reputation in this area and one that has been recommended to you by a family relation, friend or other business advisor.
Seller’s approach-In many of these distressed sales, sellers seem to be taking the approach that you are “getting a bargain” and when it comes to the legal transaction the seller often seems unwilling at the outset to furnish even the very minimum documents that should be expected in a normal transaction. In all likelihood you are not getting a “bargain”. You are paying market price today for the asset and your Solicitor should insist that the seller complies with it’s obligation to furnish at it’s expense all of the normal documentation that would be expected of any seller (subject to the limitations below)
Normal Warranties- To be fair, when Banks or Receivers are selling distressed assets they cannot give all of the normal warranties and assurances which a private seller would be expected to give. The Bank or Receiver may have very little personal knowledge of the history of the property, disputes with neighbours over boundaries, notices that may have been received etc. Extra care should therefore be taken by you in advance of signing the contracts. Arm yourself with as much local knowledge as possible, have a chat with someone else living nearby to see are they aware of any problems.
Planning Permissions and Planning warranties- General Condition 36 of the Law Society standard contract of sale contains a warranty whereby the seller agrees to prove that the property fully complies with all planning permissions and building regulations and will prove compliance by furnishing a certificate of compliance with these rules signed by an appropriately qualified Architect or Engineer. Even where there are no planning problems this condition is very frequently being excluded from the sales contract. The result is that the responsibility to have these matters investigated passes from the seller to the buyer. The buyer, assuming that a mortgage is required to buy the house, will still have to convince his own lending institution that all planning matters are in order. This usually means that the buyer will have to engage and pay an Architect or Engineer to make these investigations and issue the appropriate certification to enable the buyer to satisfy the buyer’s bank in advance of the loan cheque issuing.
Delay- On the seller’s side, despite what the banks are saying publicly on this matter, the reality is that they are taking quite a long time to agree to and process sales where the properties are in negative equity so any sale of a property that is in negative equity is likely to take longer to complete that a normal transaction.
On the buyer’s side, even if you do secure a written loan offer from a bank then it is important to know that unless the title and all associated issues are in order the bank may still refuse to allow you to draw down funds. The average time between applying for a loan and actually drawing down funds has dramatically increased since the property bubble burst in 2006/2007. The sooner that you apply, and the better prepared and advised you are, the more smoothly and quickly your transaction will proceed.
Auctions- If you are considering buying at an auction and particularly at an auction in which a large number of properties are being offered for sale you need to be prepared well in advance and be very careful. Do not bid at such an action unless you have had the contracts and title examined by a competent and experienced Solicitor and remember that you will incur a fee for this service whether you buy or not. Do not bid on the property unless you are a cash buyer or are 100% certain that you have a written letter of loan offer from a Bank and that you are certain that you can comply with all of the loan conditions. Do not assume that all of the auction contract conditions are going to be fair or that the title will be ok because it is being offered for sale by auction. You might even be better engaging your Solicitor to bid for you on the day. I recently witnessed a potential buyer at an auction bid unnecessarily against himself twice! I also recently witnessed an unwitting buyer bidding for a commercial premises where the title comprised of a lease with only 40 years remaining and that buyer may have ended up with a title that will be unsaleable in the future.
Budget- At the earliest possible stage you will need to prepare a simple budget of all costs and expenses that buying a property will involve. Your Solicitor will help you with this process. You will have legal fees and outlays, valuation fees, survey fees, life assurance premiums, buildings insurance etc. If you address this issue in advance then there should be no nasty financial surprises awaiting you as the process unfolds. You will inevitably have increased expenses associated with buying a property in negative equity so it is best to find out about any such increased costs as early as possible.
The Deal; It is still a buyers market out there but you are likely to be able to secure the best deal possible if you can demonstrate to the seller that you are serious about your bid, that you are well organised, that you have engaged a Solicitor, that you have a Surveyor on stand by to do a structural survey and most importantly that you have at least a loan approval agreed in principal with your Bank. Sellers do not usually want to conclude a deal with a buyer and take the house off the market unless they are certain that the buyer can conclude the deal quickly if the buyer’s offer is accepted. It is also better to address many of the problems mentioned in this article at the earliest possible stage even before contracts are issued so that you can let the seller know what you are prepared to live with and what he must do as a minimum.
Be careful out there!
Val Stone is the Managing Partner of Stone Solicitors, a law firm that has been practicing from 14 North Main Street, Wexford, for the last 21 years. Stone Solicitors can be contacted on 053 9146144 or by e-mail at firstname.lastname@example.org .
Visit our website at www.stonesolicitors.ie