As our current economic climate is showing very positive signs of recovery, auctions of distressed properties continue to take place throughout the country. In most cases the properties at such auctions are being sold by receivers, who have been appointed by banking institutes.
While receivers are appointed by banks and other leading institutions, they act on behalf of the home owner and have a duty to secure the best possible price for the property. With that said, you can still secure a “bargain” property; however the warning Caveat Emptor or buyer beware will be very significant when buying under these circumstances.
One of the main reasons to heed the warning “buyer beware” is that when a receiver is selling a property the sales contract will include a number of special conditions which would not normally be included in a standard sales contract. Such conditions will reduce the obligation on the receiver to provide certain warranties.
We have reviewed some of the conditions which you should be aware of when purchasing a property from a receiver which you may wish to consider as such conditions will have the effect of transferring the responsibility to secure certain documents from the vendor to the purchaser.
1. Warranty As To Planning
Without this warranty included in the sales contract, the onus is on the purchaser to ensure that the property has the correct planning permissions and that the property has been constructed in compliance with planning regulations. It may be advisable to secure the services of an architect to carry out such confirmations, as they can be complex and professional knowledge will be required.
2. Warranty As To Boundaries, Right Of Way And Easements
This warranty is generally excluded as a receiver will have no prior knowledge of the property. Also, receiver is only obliged to disclose to third parties any rights which have come to their attention during their appointment. It is important that you conduct due diligence in relation to these matters, to avoid later difficulties in relation to accessing services such as water, sewage drainage and utilities. Furthermore, if purchasing agricultural or industrial developments you may encounter difficulties in accessing a property which may be landlocked, therefore requiring a right of way to be obtained. As part of your due diligence you should also speak with local residence to gain an understanding of the history or any difficulties in relation the property you are considering purchasing.
3. Warranty As To Notices Served
As above, the receiver is only obliged to notify the purchaser of any notices which they become aware of. Such notices can include service charges, NPPR charges, household charges or LPT charges due on the property; however as part of your solicitors duties they should ensure these costs are paid by either the receiver or property owner before contracts are signed.
4. Title To The Property
A further part of your due diligence will include a confirmation that the receiver has the ability to sell the property. Such confirmation will again be carried out by your solicitor before you proceed to purchase, as your solicitor will be required to confirm the property can be registered in the land registry.
It is also important that your solicitor verifies that the description of the property, including all rights and easements, coincide with the title held by the receiver. This is a vital point as the receiver is only in a position to sell the interests as outlined in the bank’s mortgage. For example, if a property includes a right of way, which was not included in the bank’s mortgage, you may have difficulty gaining access to the property.
Tips When Purchasing A Property From A Receiver
There are many opportunities for those looking to purchase a “bargain” property from a receiver. All major banks in Ireland have indicated that they still have a significant number of properties which they will dispose of through a receiver.
If you are considering purchasing a property in this manner the following are some helpful tips which may assist you:
- Employ a reputable solicitor.
- Employ a reputable architect.
- Review all documents available online prior to auctions, with assistance from your solicitor and architect.
- Carry out sufficient due diligence on the property.
- Speak with those living in the area to gain an understanding of the history of the property and the locality.
- Consult with your financial advisor before you commit to an investment.
- Prepare a budget of all costs and expenditures to eliminate any surprise costs.
- Do not bid on a property unless you are a cash buyer or have a written letter of offer from your bank and can comply with all loan conditions.
As outlined above there may be a number of pitfalls when purchasing from a receiver; however, making yourself aware of the pitfalls and carrying out effective due diligence with your solicitor, prior to putting a bid on a property, could prevent you from purchasing a “money-pit” property and allow you make a sound financial investment.
If you have any queries in relation to the above or require further information please do not hesitate to contact a member of our team.
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