Legal tips for buying property from a receiver

By Karen Walsh

Receivers are appointed by a bank, pursuant to a bank’s mortgage over a property.

The receiver takes possession of the property and disposes of it by selling it.

The receiver has a duty to obtain the best price possible, and although appointed by the bank, acts as an agent of the borrower, being the registered owner of the property.

The bank may have suffered a loss on the property, as the property is sold for less than what is owed to them, and will want to dispose of it as soon as possible in order to minimise the loss suffered, and will not want to incur any additional expense, if possible.

For this reason, the buyer will typically be buying a distressed asset which is being sold at a “bargain” or lower price than market value.

However, the buyer expects to assume some risks and take on some due diligence that might otherwise lie with the seller. When selling distressed assets, the receiver cannot give the normal assurances that a private seller would normally be expected to give.

Normally the seller must satisfy the buyer that the property is in full compliance with the planning acts and with building regulations.

Condition 36 of the Law Society Standard Contract of Sale provides that the seller agrees to prove that the property fully complies with the planning acts and with building regulations by furnishing a certificate of compliance signed by an engineer or an architect. This is often excluded from the contract for sale where a receiver is selling the property, which has the effect of passing the onus to investigate these matters from the seller to the buyer.

If the buyer requires a mortgage to purchase the property he/she will have to show the relevant lending institution that all planning matters are in order. This involves engaging and architect or engineer to investigate and to issue the appropriate certification to satisfy the lending institution.

Because the receiver is not the registered owner and is simply the registered owner’s agent, they may have very little practical knowledge of the property such as its history, boundary disputes and other matters. The receiver thus gives no warranty as to boundaries. The buyer has to carry out a full survey of the property and instruct an engineer or architect to ensure that the map comprises the property entirely on the ground.

If you are considering buying property from a receiver, here are some useful tips:

• Prepare a budget. The “bargain” price of a property in receivership may not be such a bargain when legal fees, valuation and survey fees, building insurance and other expenses have to be discharged. A receiver sale is likely to have additional expenses, and it is important to plan for these in advance.
• Gain local knowledge. Speaking to people in the locality can provide a wealth of information when it comes to the history of the property, boundary disputes, and any issues with the property which may not be immediately obvious to you.
• Be organised. If you are financing the purchase through a lending institution, all the qualifications and limitations in the contract for sale must be agreed to by the lending institution in writing before the contract is signed. This can take several weeks, so it is important that this is undertaken in a timely manner.
• Ensure that the property has access. If the property requires access over a neighbour’s land, check whether there a right of way in place.
• Instruct an engineer or architect to make sure the property is in compliance with planning legislation and building regulations.
• Check the utilities. If the water and ESB are disconnected, a sizeable fee may be payable for reconnection.
• View the property one final time before closing the sale to ensure nothing has materially changed and that there is vacant possession.
• If the property is a repossessed house or apartment in a managed estate, the receiver’s solicitor may not have up-to-date information from the management company. The bank will want to ensure the management company has taken over the common areas and that there is a block insurance policy in place, to which your and their interest will be noted. Any arrears of service charges will have to be paid by the bank out of the proceeds of the sale before the change of ownership will be noted by the management company.
• The price of the property will certainly be a consideration, but the additional costs to be incurred should not be forgotten. It is highly advisable to seek legal advice from a solicitor who is experienced in conveyancing before buying property from a receiver. This will help you make the most informed decision. Always remember, “caveat emptor”, let the buyer beware.

Karen Walsh, from a farming background, is a solicitor practicing in Walsh & Partners, Solicitors, 17, South Mall, Cork (021-4270200), and author of ‘Farming and the Law’. Walsh & Partners also specialises in personal injury claims, conveyancing, probate and family law.

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Web: www.walshandpartners.ie

While every care is taken to ensure accuracy of information contained in this article, solicitor Karen Walsh does not accept responsibility for errors or omissions howsoever arising, and you should seek legal advice in relation to your particular circumstances at the earliest possible time.