The Pitfalls of Buying a Repossessed House

Repossessed properties are usually advertised as such. The vendor is a bank who has a mortgage on the property. The owner has failed to make the repayments. The bank has obtained possession either by having taken the necessary legal steps to evict the owner or the owner has voluntarily given up possession and handed in the keys to the bank. The bank’s agents can then enter the property, change the locks and put it up for sale. You must remember therefore that you are not buying from a proud owner who wants to present his or her property in the best possible light to get the best possible price but from a bank which has already suffered a loss on the property and wants to dispose of it as soon as possible to minimise that loss. The bank will want to sell the property as it stands and will not want to go to any expense if it can avoid it.
It is very likely that repossessed homes will not be in show house condition. They may have been left empty for some time. Fittings, such as boilers, oil storage tanks, kitchen units, which normally go with a house, may have been removed and sold by the poverty stricken owner (who will have no love for the bank) in order to fund emigration to Australia or some other destination. This will reduce the price but be careful; caveat emptor, buyer beware, very much applies. If the electricity has been cut off for two years because the bill has not been paid, although a new owner cannot be made liable for the arrears, a new owner may have to pay a re-connection charge which can be expensive. If the house is old enough and the electricity has been cut off long enough an electrician’s certificate may be needed and if the electrician decides that the electrics are not up to standard you could be faced with considerable expense. It is also possible that worthless furniture or other effects belonging to the owner may be left in the property and you will need to ascertain if these are going to be removed prior to completion otherwise you shall have the expense of their disposal. It is strongly recommended therefore that you inspect the property thoroughly, check that all utilities are in working order and have a detailed professional building survey carried out before contracts are signed.
The bank, as vendor, will have limited knowledge of the property. The bank’s agent and auctioneer will therefore not be able to provide all of the information you would normally expect from a normal vendor. The owner may have purchased the property and got the mortgage years previously and the bank may have no knowledge of what the owner has done to the property since then. Therefore you will have to make your own enquiries and it is more advisable than ever to visit the relevant Planning Department, inspect the planning register, talk to the planning officials and ensure that there are no outstanding planning permission or building regulation problems of which they are aware. If the property is a house in an estate or an apartment you must enquire if there are any such problems with the estate or apartment block of which the property forms part. Your surveyor can assist you in making these enquiries.
The bank’s solicitors will issue a contract for sale with document of title but they will limit your solicitor’s right to make standard enquires and will not provide replies to those enquiries which normally vendors must provide. As with the property itself,  you are usually offered the contract on a “take it or leave it” basis. Your solicitor will try to resist this and protect your position as much as possible. The bank will want to impose a tight time limit for signing the contract so you need to ensure that there are no unnecessary delays in carrying out your survey and inspections and , if it applies, having your own mortgage approval in place. Banks will almost never allow the contract to be made subject to loan approval for the purchaser.
A major difficulty for buyers of repossessed apartments or houses in managed estates is that the bank’s solicitors will usually not have up to date information from the management company. This information concerns the service charges for the management of the common areas, green areas, lifts, sinking fund, etc. but most importantly, in the case of apartments, insurance on the apartment block. Your solicitor will insist that this necessary information be supplied. If you require a mortgage to complete the purchase of an apartment no bank will lend to you unless the position of the management company, and in particular the block insurance policy, is in order. Any arrears of service charges will have to be paid by the bank out of the proceeds of the sale before a change of ownership will be noted by the management company. Your solicitor will ensure that you do not have to pay for service charges which should have been paid by the owner.
The owner may have taken out a second loan on the security of the property which is also registered on the title as a second mortgage. There may be court judgements registered on the title against the owner as Judgement Mortgages. However, when a first mortgage lender sells, provided the proper legal procedures are followed, you need not concern yourself with these other mortgages on the title. It is the duty of your solicitor to ensure that they are cancelled when your registration as owner is completed. Neither should you worry if the price you are paying is less than the amount owing on the owner’s mortgage. Once the bank has sold it must either write off any shortfall or try to recover it from the l owner. Your solicitor must ensure that you own the property clear of any such debts or charges which the unfortunate former owner may not have paid, e.g. the NPPR Charge, the Household Charge and , coming soon, the Property Tax.