Workshop: Property: buying repossessed

I have recently been instructed to act in a worryingly increasing number of residential purchases of repossessed properties. It is the all, now too familiar, story of people borrowing too much when times were good and then not being able to make repayment when times are tough. Usually, but not always, these purchases are made by landlords looking to increase their property portfolio while property prices are low; and who can blame them?

Acting on the purchase of these types of property can be quite straightforward. The lender will have their own solicitor who will issue a contract (with no amendments being permitted), a TR2 Form and such title documents which are available. There may be a sheet of replies to standard enquiries, which usually state in no uncertain terms that the seller has no further information, no warranties are given, that the buyer must rely on their own inspections, searches and surveys and the property is sold as seen. Without being too cynical about the whole thing, this does make a purchase a much more straightforward affair.

However, there is some work to do for a purchasing conveyancer. For instance, property searches may still need to be carried out, investigated and reported to the buyer as well as reviewing the title for the usual covenants and restrictions.

Charges discharged

In cases such as these it is important to keep in mind that a ranked first lender will sell free from all charges registered subsequent to their own. So, you will not need to be concerned about ensuring that all charges, if there are more than one, are discharged. If the seller is a second or even third charge holder then they will need to either sell the property subject to the prior charge(s) or redeem them itself. Either way, this then becomes a concern for the buyer's conveyancer. You should check who the seller is and where they are ranked and check how they intend to deal with prior charges. If they are redeeming them, ensure that you have evidence of discharge or an unequivocal undertaking from their conveyancer to redeem and forward evidence of discharge.

I have previously been asked about how restrictions on the title are dealt with is these situations. Unfortunately, there is no straightforward answer. However, as a general rule of thumb, if the restriction prevents a disposition by the proprietor of the registered estate then a sale by the lender is not caught by it. There are other standard form restrictions which the Land Registry will cancel as a matter of course but essentially, you need to look at the wording of the restriction in order to establish whether the transaction is caught by it. Land Registry Practice Guide 75 gives some information on this point.

The lender will usually sell with vacant possession, which means that they will require a court order for possession. Acting for the buyer, you will not be concerned with the possession order, however, it is important that you advise your client to keep a close eye on the property as it may be susceptible to squatters or vandalism. There is an implied obligation on the lender to keep the property in good order (due to the obligation to get the best price available), so it should be possible for any major repairs to be completed if caused by acts of vandalism. However, because of this responsibility, the buyer's exposure to the property will be limited.

The lender will usually give a buyer a short period of time in which to conclude their investigations and exchange contracts. Coupled with this time limit is the knowledge that the lender must get the best price they are able to on the open market and, the property will not be removed from market until exchange of contracts. This can put pressure on us conveyancers to move quickly, especially if search results are taking a long time to come through. Provided your client is aware of the time difficulties with this type of transaction, there can be no surprises if it does not go his way.

All in all though, a purchase of this type is relatively straightforward with some pitfalls which should not hinder you if you know where to look.

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