Buyer Beware: A Guide to Buying a House From a Receiver
‘Receiver sales’ first became commonplace in Ireland during the tough economic period after the end of the Celtic Tiger boom. They usually occur when a borrower has defaulted on a loan and the bank has appointed a receiver to take possession of and sell any secured assets. If you’re buying a house from a receiver, the proceeds of the sale are usually used towards the repayment of the original loan provided by the bank.
Receiver sales vary depending on the original debt and asset profile: they might take the form of a bulk disposal of multiple properties; they’re sometimes carried out via auction; and while not guaranteed, they’re often discounted as the bank seeks to recoup their losses quickly and efficiently.
What does this mean to a purchaser?
If you decide to buy a property from a receiver, the whole process will feel quite different. Instead of buying from the current owners (a family or estate), you’ll be dealing with a receiver or his/her office. As the receiver is appointed by a bank, he/she will have very little personal knowledge of the property as opposed to the registered owner of that property who may have lived in the home or worked the land for a number of years. On a personal level, this might mean you’re missing out on some important information like nearby school details or neighbouring farm relationships.
From a legal point of view, the property receiver will usually amend the contract for sale by including additional special conditions which would not be found in an ordinary contract for sale. These conditions will typically exclude any warranties from or liability attaching to the receiver in relation to the property. In plain English, they’re usually saying something to the effect of “we don’t know anything about this property, so we can’t be held responsible for any inaccuracies”.
As a result, you and your solicitor should follow a number of steps to counteract these exclusions as much as possible to protect yourself and your investment. These steps might include:
- Establishing the identity of the property
Do you know what you’re buying? ‘Hedge wars’ can cause a lot of stress, so it’s best to be 100% clear about your boundaries long before you sign on the dotted line. As a purchaser, you should engage an expert such as an architect or engineer to check that:
- The physical boundaries correspond with the title map
- The property has direct access to the public road
- The property has the benefit of water and electricity
- Where applicable, the property has its own septic tank or access to the public sewer
The expert will need to provide a certificate of identity that can be used to form part of your conveyancing documents.
- Checking planning and building control regulations
The engineer or architect should also visit the local planning authority to conduct a planning search.
There, they should be able to find all relevant planning permissions that were obtained in relation to any development carried out upon the property. If they find any evidence that planning permission was granted, they will need to inspect the property to make sure that any development was carried out in accordance with the permission (for example, roof heights, window sizes, attic conversions, etc.).
Once this is completed, the expert will need to provide certificates of compliance with planning permission and building regulations. These are very important as they will be required by your solicitor in order to certify a good marketable title, especially if you’re planning to borrow money from a bank.
- Looking up notices
The receiver will not usually be in a position to disclose property notices that may have been served upon the registered owner.
The architect or engineer engaged by the purchaser should counteract this lack of knowledge and information by carrying out a thorough inspection of the property and by checking public records, where available.
It’s important to check that all boundaries are secure and that no third party has rights over the property such as a right of way or a wayleave with regard to a septic tank or water supply from a well, etc. These types of challenges can create real headaches and potentially lead to legal ramifications at a later date so it’s far better to find out before you complete your purchase.
- Reviewing the appointment of receiver
As the purchaser’s representative, your property solicitor will seek a copy of the deed of appointment of the receiver by the bank and a copy of the relevant deed of mortgage.
This is to make sure that the bank’s appointment of the receiver matches the paperwork and that the bank has the power of sale. Your solicitor will seek to ensure your receiver contracts and other paperwork don’t contain an error that might mean you can’t proceed, such as accidentally including the wrong receiver’s name or firm details.
Receivership can be a messy business, and it’s not uncommon for banks to engage with a number of receivers as they seek to dispose of various assets in different locations.
- Ensuring vacant possession
Buying a house is a special part of anyone’s life. When you put the key in the door for the first time, you want to find the house empty and ready for you to move in. It’s vital, therefore, that your solicitor ensures you get vacant possession of the property, i.e, that it’s empty of people and contents.
In a typical contract for sale there will be a general condition which obliges the vendor of the property to ensure vacant possession is available at the closing of the sale. This means that any contents in the property are removed prior to closing and that any person in occupation must vacate the property. In the case of land, it means that any livestock or bloodstock should also be removed from the land.
Because of their more ‘hands-off’ approach, a receiver will sometimes insert a special condition into their contracts which excludes this general condition of sale. This can prove to be very problematic as a third party (including the registered owner) could stay in the property, and even seek to acquire squatters’ rights (or adverse possession). The chances of this happening are higher if you’re buying a repossessed house, so it’s important your solicitor takes steps to mitigate this risk for you.
- Carrying out searches
It is very important that the purchaser’s solicitor conducts searches on the title. In practice, when it comes to private residential property, this usually means checking for:
- Revenue and Sheriff notices
- Land Registry / Registry of Deeds changes
Of particular importance in the case of a receiver sale is making sure that there are no judgement mortgages appearing on the title. This can happen where a registered owner, for example, is sued and an order of the court is obtained giving judgement to the plaintiff in those proceedings.
The plaintiff can take steps to secure the order of the court by having a judgement mortgage appear as a burden on the title. If this appears on title, it may be necessary for the bank to sell as mortgagee, and in this way it does not have to honour the judgement mortgages registered on title. This would be the situation should there be insufficient funds available to pay off all mortgages appearing on title.
While it might sound complicated, a qualified conveyancing solicitor will be able to help you navigate it all, ensuring you don’t find yourself with any unexpected surprises.
How should a purchaser protect themselves?
Buying property from a receiver can be a great way to secure a home, but it’s also more complex than the average purchase. Every year, hundreds of receiver sales go through without a hitch, but that’s because they are usually carefully managed by experienced legal firms such as HOMS Assist.
Due to the many pitfalls which exist when purchasing from a receiver it’s essential that any purchaser obtains legal advice before signing a contract for sale. The list outlined above is not exhaustive and each contract must be examined individually on a case by case basis. This is particularly vital now as Irish house prices reach record highs. Whether you’re hoping to buy a farmhouse in the country, an apartment in the city, or a home in a housing estate, you’ll need to talk to a solicitor first.
William Donovan of HOMS Assist Solicitors has an exceptional level of experience in property law, having worked in the field for more than 30 years. He has seen every situation and circumstance when it comes to contracts for sale with a bank-appointed receiver as vendor. As a result, he’s the person you’ll want on your team, protecting your interests and safeguarding your future.
If you’re thinking of purchasing a property from a receiver, don’t delay — get in touch with William today on 1800 207 207 or [email protected].