Conveyancing partner Brett Lawrence looks at the legal issues associated with buying a repossessed property.
Whenever mortgage interest rates rise, the number of repossessions usually increases too. As a consequence of the present cost of living crisis we are therefore seeing more properties being sold by mortgagees in possession.
A mortgagee in possession is a lender, such as a bank or a Building Society, which has repossessed the property after the borrower has defaulted on their mortgage repayments.
Purchasers on the hunt for a bargain often target repossessed properties because mortgagees in possession are frequently willing to accept a price that is lower than what a private individual would seek.
While these transactions are similar to a standard property purchase, there are additional legal issues associated with buying a repossessed property from a mortgagee that need to be considered.
First and foremost, your solicitor needs to establish that the mortgagee is legally entitled to sell the property, and that the property will be free from the mortgage which the previous owner has defaulted on.
You should also bear in mind that as you are buying from a mortgagee, rather than an owner-occupier, they will have very limited information about the property. Consequently, answers to the usual pre-contract enquiries won’t be as comprehensive as you would normally expect. Mortgagees in possession are unlikely, for instance, to have knowledge of any ‘Notices’ that the previous owner may have received. They may also lack knowledge relating to the services or local planning issues. It is therefore sensible to undertake a particularly careful inspection of the property. Purchasers may also wish to arrange for a full structural survey to be carried out.
Before accepting your offer, mortgagees will often ask purchasers for evidence of available funds to buy the property, so it is worth obtaining documents to prove you have the finances to proceed when you make your offer.
Because mortgagees in possession have a duty to achieve best price, once they have accepted an offer, they will normally publish it via the selling agent to encourage a better offer. This impacts on you as a buyer in two ways:
- even after accepting your offer, they can go with a higher offer; and
- the quicker you are ready to exchange contracts the less likely the transaction will fall through.
Finally, whilst buyers tend to be emotionally invested in the property, do bear in mind that the mortgagee will usually be a committee of accountants looking at a spreadsheet, which can be very frustrating for purchasers.
We deal with conveyancing nationwide, so if you are planning to buy a repossessed property, then contact us for a chat and a fixed fee quote.