The Pros and Cons of buying repossessed property
2 November 2011
Buying a house or property that has been repossessed commonly means buying from a bank or mortgage lender rather than a home-owner. For many, the advantage is clear – price. Repossessed property can often sell for much less than the value it would reach on the normal market. However, this is not always the case. The bank has a legal duty to obtain the highest price it can and has to be seen to do so. But essentially, it will be looking to recoup the outstanding debt first and foremost, and with any surplus profit going back to the debtor, it isn’t actually in the lenders interest to gain more than they are owed.
Whilst the financial gain will be the driving factor for many, there are some drawbacks that you should be alert to. Unlike a regular conveyancing transaction where it is in both parties solicitors interest to make the transaction as smooth, open and efficient as possible, when dealing with a lender this may not be the case. Documentation relating to the standard of both the building and appliances, such as guarantees, warranties or even planning documentation may be mysteriously absent. If you need copies of these, you may have to get them at your own expense. There may be no guarantees that appliances will work, including boilers and central heating systems which can be expensive to fix or replace. It is worth noting that in larger properties, you may only receive a front door key. This means that there can be an unexpected expense in having locks changed on windows and doors to ensure the property is secure.
Disgruntled and understandably bitter outgoing owners can also sabotage the property before they leave, with stories of taps being left on to cause flooding common, and less than careful removal of fixtures and fittings by both owners and debt collectors can also result in damage being caused.
The subject of debt collection agencies may appear to be one for the debtors to worry about, but it is also something that a new owner might encounter, both in person and by post. It can be time consuming redirecting post and confirming to collection agencies that you are the new owner of the property, but in the first few weeks in the property it may be something that you have to deal with.
Unlike England, where even following an offer the lender is bound to continue to market the property in the hope of receiving a higher price, in Scotland, our system means that once an offer has been accepted, it is binding once the contract is concluded and the property should be removed from the market. At auction the principle is the same, with the deal being sealed once the hammer falls.
For some, there is a moral issue of buying repossessed property. But the savings can be significant and by doing so, the debtor is actually clearing their debts and the buyer securing a home that might have otherwise sat empty. With the current state of the economy and the housing market, there has been a marked increase in repossessed property becoming available and whilst someone is losing out on their home, there is always someone who will use that to their advantage. If you are thinking of buying a repossessed property, you should of course make sure you own finances or mortgage arrangements are in order to put you in the best possible position, and seek expert advice on the process.