Buying Properties from Insolvent Sellers

When receivers or administrators sell properties on behalf of banks or financially distressed companies, the modest prices can be tempting. During the financial downturn, we saw more property sales where the seller was insolvent and, with recent reports suggesting interest rate rises might be fairly imminent, it is possible there will be a further increase in activity. If you are thinking of buying a property from an insolvent seller, there are a number of issues to be aware of. Here are three key points to bear in mind. Due Diligence This is the process that the prospective purchaser and their solicitor would normally go through before buying to ensure that there are no problems with the property that could reduce its value or make it difficult to sell on. The trouble with insolvency sales is that the receiver or administrator will have no actual knowledge of the property they are selling. This means that important information such as liability for boundaries, access, availability of utilities, disputes, breaches of planning and building regulations and occupants is unlikely to be available. To compound this issue, insolvency practitioners will not accept any personal liability on the sale which means that there will be no one to take legal action against if a problem comes to light after the transaction has gone through. There's no denying the reality that buying property from an insolvent seller is more risky and this increased risk ought to be reflected in a lower price. You should make sure that you understand exactly what investigations your solicitor is carrying out, that he or she explains the precise risks to you and that you are comfortable with those risks. You can also reduce the risk by carrying out your own inspection of the property and make sure that you have a thorough, professional survey carried out. Marketing Receivers and administrators are under obligations to get the best deal they can. Therefore they usually refuse to take the property off the market even when an offer has been accepted. As a buyer you will therefore be at risk of being gazumped, resulting in potentially sizeable wasted costs. Timing Insolvency practitioners will often set a very short timescale for you to complete the purchase. This means that you and your advisers are likely to be under significant pressure to get the deal done. Completing the deal quickly will also reduce your risk of being gazumped so make sure your advisers are able act speedily and that the funding for the purchase is in place early. Buyers who take into account the increased risk and take appropriate steps to reduce it, by obtaining good quality legal advice, can benefit from the attractive prices available. So, is it a good idea to buy property from insolvent sellers? The answer to that will depend on the buyer's experience in the property market and attitude to risk.