In normal economic times, 140 families per week have their homes repossessed for failing to keep up with their mortgage payments. Repossession of property has fallen substantially in the past few years, thanks to low-interest rates and a buoyant jobs market. However following the uncertainty surrounding the coronavirus, the risk that interest rates eventually start to rise again, and with wages continuing to stagnate in real terms, all means repossessions may increase significantly.
For savvy buyers, a repossession sale can result in the chance to snap up a bargain – as lenders are often after a quick sale to recover any money outstanding on the mortgage. However, repossession sales are not always about money. From defective titles to planning issues, a repossessed property purchase could land you in a minefield of problems.
However the short term changes in law brought in by the Coronavirus Act in March 2020, and the approach of the courts during the covert crisis meant that as at May 2021,repossessions by county court bailiffs had decreased by almost 100% respectively. With the reopening of the economy and the lapse of many short-term rules concerning repossession and landlord and tenant law in general, expect these figures to rise sharply.
Experienced, smart, and practical legal advice will ensure you can celebrate your new property purchase – whether you intend it to be your home or as a buy to let. Our conveyancing solicitors provides advice to clients locally across Wiltshire, Hampshire, and Dorset and throughout England and Wales – from our offices in Salisbury, Fordingbridge, Andover and Amesbury.
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What is repossession?
When you take out a mortgage, the lender uses the property it is lending on as security. If you default on your mortgage repayments, the lender can seek a possession order from the court. This will allow them to sell your home and collect all or part of the debt owed.
It is not just older properties which feature in repossession sales – it is also possible to nab yourself a new build .
Click here to read more about buying new build property.
What are the risks associated with buying a property in a repossession sale?
A repossession may have occurred because the owner found it impossible to sell the home due to:
- severe structure defects, subsidence, or damp
- the property has a short lease (i.e. under 80 years) – though a lease extension may sort this particular issue – click here to read more about lease extension
- the title is defective
- the land the house is built on is contaminated
- there is a regulatory issue (e.g. a planning or building matter) affecting the property that you can’t resolve
In such a situation, the owner hands over the keys to the lender and walks away. And most people don’t want to find themselves in possession of this type of property.
In addition, the lender will have little or no idea about the property. Your conveyancing solicitor will not be able to pick up the phone and ask the vendor’s conveyancer if the roof leaks. Most of what you learn about the property you wish to buy must be uncovered by you and the experts you instruct.
And remember, ‘caveat emptor’ or ‘buyer beware’ applies to all property sales in England and Wales. That means that repossession conveyancing is quite different from buying any other property.
Unfortunately, it is easy to feel pressured in a foreclosure sale. The lender is forced to get the best price possible. Therefore, they may well continue to market the property even after an offer has been accepted, right up to exchange. However one bit of good news – as a result there should be no onward conveyancing chain.
In the desire to buy your ‘dream home’ or bargain investment at a whopping discount, you may be tempted to skip certain conveyancing formalities to speed up the process. Such rashness could cost you thousands of pounds in the future. Don’t cut corners.
When it comes to repossession sales, fortune favours the cautious rather than the brave.
Buying repossessed property – the importance of physical inspection
In our view you should always visit and inspect any property you’re thinking of buying – even if it’s a buy to let property bought at auction.
But that’s even more important if the property in question is a repossession – because you’re going to get much less information than usual from the vendor or, as described above.
In fact when buying any repossessed property it’s probably a good idea that you carry out a number of visits to the property and it’s even more important than usual that you have a survey carried out to reveal any hidden defects.
What extra due diligence will my conveyancer undertake in a repossession sale?
In a repossession sale, an experienced conveyancing lawyer will treat the property with the same care they would an unexploded hand grenade. But before they get to work, you need to check the property yourself.
Remember, it is likely the house will have been empty for some time and as a result not be in the best state.
Make sure all the rubbish has been cleared (not least so that any building problems aren’t hidden), that the photos and descriptions provided by the estate agent are accurate, and that all of the previous owner’s possessions are gone. Have a good look around the house at any damage. It’s not unusual for those who are having their home repossessed to take out their frustration at what has happened by trashing internal fixtures and fittings.
Once you are satisfied with the property, your conveyancer will carry out various due diligence steps to make sure any problems are discovered. These include:
- Look for any legal issues which may affect a mortgage being granted. Even if you are a cash buyer, you may need to sell the property in the future. If legal issues prevent possible future purchasers getting a mortgage, your pool of buyers will be severely limited.
- Examining the title. Defective titles can cause innumerable issues for the unaware. Your solicitor will check for problems such as lack of easement, no covenants for the maintenance/repair of a private road or sewer, lack of right of way, and boundary issues. If your conveyancing solicitor raises any of these issues – make sure you understand what they mean.
- Undertaking searches on the property. There are multiple searches which can be carried out on a home and its surrounding land, including checking for any flood risks, drainage and water issues, contaminated land, ground instability (for example if the land around the property was formally a working mine), and any local authority issues (e.g. if the house is due to be demolished to allow a new road to be built).
- Getting a proper survey. A RICS survey will ensure that any issues such as Japanese Knotweed, subsidence, damp, or asbestos present in or around the property are brought to your attention. A building survey (rather than simply a ‘Homebuyer Report’) should ensure any structural problems are brought to your attention. If work is needed to bring the building up to scratch, it may be worth getting quotes in advance – so you know what you’re taking on and how much it’s going to cost.
Our team has a wealth of experience in repossession conveyancing – there are few situations we have not come across before. We will let you know if any further due diligence is needed to ensure your best interests are protected.
Does the lender have authority to sell the property?
Some people are concerned that title of the property (i.e. the legal ownership recognised either at the Land Registry if the land is registered, or in the title deeds in the case of unregistered land) could cause difficulties during the conveyancing process.
But there is no need to worry. That shouldn’t be an issue. With repossessed property, the mortgage lender has the legal ability to sell a property whatever the legal owner thinks.
Repossessed Property – Practical issues
• Remember that the electricity, gas and water are likely to have been disconnected.
• It’s not unusual for the previous occupants to leave the property in very poor condition. It’s quite common for them to have simply stripped out all fixtures and fittings before moving out. And they may also have intentionally damage the property.
• The property will probably have been left empty for some time, and this in itself may have resulted in damage
• It’s unlikely that the property is going to be in good decorative order, but you should make sure that the any rubbish left at the property, or the original owner’s possessions have all been removed by the vendor.
Potential difficulties with Leasehold properties
There can potentially be additional problems when the repossessed property you’re buying is a leasehold flat.
• Getting the right management information
One major problem when you come to buy a repossessed leasehold flat is that lender’s solicitors probably will not have got hold of management information from the freeholders.
And sometimes they even prove reluctant to spend time in getting such information, even when your sale has been agreed. Your Conveyancing Solicitors should insist on getting the necessary information – in fact it’s a requirement under the solicitors practice guide issued by the Council of Mortgage Lenders.
However, it’s often not as simple as you’d expect. A surprising number of managing agents and freeholders simply won’t correspond with anyone who is not the legal owner or the mortgage lender of whom they have notice. They may also demand a fee for supplying the information. Your solicitor should make sure that the vendor pays this.
Amongst the most important information you need about management of the block is in relation to ground rent and service charge- especially if there are arrears- as well as buildings insurance and future planned works. This is often a bigger problem with larger blocks – when much larger sums will probably be involved for maintenance. However, it often easier with smaller blocks, where it may well be the leaseholders handle maintenance of their block directly.
• Unpaid ground rent and service charge
It’s not unusual for the original owner to have missed payments of ground rent or service charges for some time. Your solicitor should make sure that the lender has cleared any unpaid payments of this type before you complete the purchase.
It’s really important this is done – because if not, you may have difficulty in persuading either the freeholder or the managing agents to accept that it’s not your responsibility. And that could mean that you find that you, as the new owner, end up settling these arrears
Repossession Conveyancing – the need for speed
Make sure that you appoint a solicitor as soon as your offer has been accepted on a repossessed property. That’s because it’s likely that the lender will continue marketing the property even after accepting your offer.
Remember, any agreement to buy a property is not legally binding until contracts have been exchanged. And it’s not unusual for gazumping (i.e., the vendor or accepting a higher offer from someone else after accepting your offer) to take place.
But don’t let the need for speed mean that you cut corners. As described elsewhere in this page, you really do need to do your due diligence when buying repossession.
If an issue is spotted relating to a repossessed property for sale, will the lender amend the contract?
Motivated to achieve the best price and a quick sale, lenders are often reluctant to vary a sale and purchase contract in response to an issue picked up in due diligence.
After all, it is not too difficult to find another buyer who is less thorough in their property and title checks.
Our team has the experience required to robustly negotiate with lenders and persuade them to accept contract changes in return for a reliable purchaser.
Is the conveyancing process the same if the property is sold at auction?
The risk increases if the property is sold at auction because once the hammer falls, you are legally obliged to follow through with the purchase. It is therefore imperative that all due diligence is completed prior to the auction, so you know exactly what you are entering into.
Click here to read more about buying property at auction or using the so-called modern method of auction
Buying at auction does by virtue mean there is no chance of being gazumped and seeing the money you spent on due diligence wasted. Our conveyancing solicitors will take your through the auction process from outset to completion, ensuring that rather than landing yourself a wreck, your investment is a resounding success.