News and Blog
As mortgage interest rates remain high, more homeowners are struggling financially. While a repossession is a last resort for lenders, the number of them is increasing and the trend looks likely to continue. However, it is an ill wind which blows nobody any good. If your own finances are sound, buying a repossessed property could be an opportunity, as typically, these properties are significantly cheaper to buy than ones sold by their owners. Buying a property from a mortgagee in possession or a receiver can be a good way of picking up a bargain. However, it is not for everyone and there are additional issues you will need to consider.
When someone takes out a mortgage, their lender will take a charge over the property as security for the loan. This gives the lender the right to manage and sell the property to ensure the debt is paid off if the borrower is unable to make the repayments. A ‘mortgagee in possession’ is a lender who has taken over the control and management of the mortgaged property from the borrower.
Instead of taking control of the property directly, a lender may appoint a receiver to manage the mortgaged property to protect its security. Under the general law, a receiver’s powers are more limited than those of a mortgagee in possession. However, most mortgage deeds extend the receiver’s powers. In practice, there is often very little difference between them. For example, most mortgage deeds give the receiver power to sell the property.
Legally, a receiver acts as the borrower’s agent. Lenders often prefer to appoint a receiver rather than selling as a mortgagee because this approach limits their own liability.
From a buyer’s perspective, it should make little difference in practice. However, it is important to instruct a solicitor who is experienced in this type of transaction.
Your solicitor will need to be certain the seller has the right to sell the property. They must also ensure the property is released from the borrower’s mortgage and any other charges. The mechanism for this depends on whether the seller is a receiver or the mortgagee, so it is important to understand fully the legal rules which apply in each case.
Unlike an owner-occupier, the seller is unlikely to have personal knowledge of the property. As a result, they will not usually provide replies to pre-contract enquiries, or their replies will be very limited. Therefore, there is a greater risk of issues with the property that are not apparent. This applies to both the physical state of the property, and the legal aspects of ownership.
It is also unlikely the seller will give any form of title guarantee. This means you may not have any recourse against them if there is a problem with the property’s title, or if you later discover it is subject to a charge you did not know about.
Where the sale is by a receiver, they will usually be acting as the agent of the owner/borrower. The receiver will sign the sales contract, but the owner/borrower will also need to sign the transfer deed to pass title. However, they may have little incentive to do so, meaning delays or issues can arise with completion.
Buying a repossessed property is different from a conventional purchase, but your conveyancer will help you address and mitigate the risks. For example, they may suggest more in-depth searches, or more numerous and thorough inspections and surveys. They will also ensure the receiver or mortgagee has power to sell the property, which will depend upon the relevant legislation and terms of the mortgage deed.
A good solicitor will anticipate certain issues and suggest measures to pre-empt them. For example, if the owner/borrower will not execute the transfer, the lender can do so, relying on its statutory powers of overreaching. If the correct procedure is used, this will not only transfer the title, it will also release the property from the mortgage and any other charges, such as a second mortgage. Lenders sometimes resist this because it can expose them to a slight additional risk, so it is important to have someone on your side who is used to negotiating and drafting these transactions.
Buying a repossessed property can be competitive, and getting your offer accepted can be your first hurdle. Showing you have your finances in place and an experienced solicitor on board will boost your chances.
Another thing mortgagee or receivership sales have in common is the need to act quickly. The lender’s primary concern is realising their security. They are also under a duty to get the best price they reasonably can and if there are delays on your part, or another buyer makes a better offer, you may find yourself in a contract race or even losing the property. To be successful in these types of transaction, it is imperative to have a solicitor who is proactive and who understands the overlap between insolvency law and property law.
In the residential property conveyancing team at WSP Solicitors, we have extensive experience of acting in all types of property transactions, including repossessions.
For further information, please contact us on 01453 847200 or at contact@wspsolicitors.com.
This article is for general information only and does not constitute legal or professional advice. Please note that the law may have changed since this article was published.
Do I need a solicitor to buy a piece of land?
At WSP, our commercial property solicitors handle all matter associated with buying a piece of land. Commercial Property Solicitors will have responsibilities such as: reviewing the contract for sale, preparing...
Gazumping and gazundering – perils in an uncertain market
Research suggests that nearly a third of recent sellers have suffered gazundering, which property pundits attribute to a downturn in the market. But, in some areas, the lack of suitable...
Why do Solicitors require source of funds in property transactions?
When your solicitor asks for bank statements dating back months, please believe us when we say they are not just being difficult! Gemma Francis, a Conveyancer in WSP Solicitors’ Residential...
Contact our office
Get in touch
