Buying a property at auction is a great way to get a bargain but is not without potential pitfalls for the unprepared buyer. Buying a house in the more usual way, through an Estate Agent or from a Developer is a very significant outlay and purchasers routinely engage Solicitors to make all sorts of checks to ensure the Legal Title is sound. Buying a property at Auction should be regarded with even more care, if that bargain is not going to turn into an expensive mistake. This is especially so given the shortened timescale for buying at Auction which means there is less time to fix any problems after the sale.
The Title Check
A Pre-Auction Title check is the process by which your Conveyancer checks the legal ownership of the property, any restrictions that apply to an owner and makes sure it is free of issues that would prevent the buyer from registering it in their name. Your Conveyancer will check that the plan of the property matches up to what you think you are buying. They will also check rights of way and access, obligations placed on the buyer and make sure thee is nothing that would make the house unsaleable in future.
The benefits of buying at auction
The process is generally quicker and simpler. There is no chain of transactions and Sellers are looking to move on properties quickly, which can mean (but does not always mean) they are cheaper than on the open market. However, it is not always the case that purchasing an auction property is hassle free.
Although properties end up at auction for lots of different reasons it cannot be ruled out that a defective Title is not one of them. It is too late to raise issues after the hammer has gone down and some terms and conditions of sale actually prevent the raising of title defects after the sale.
Why have a Title Check on an Auction Property
When investing so much money on a purchase at auction it is only sensible to spend a small fraction of that cost on ensuring the purchase is not going to reveal any nasty surprises. Clearly in that scenario, buyers have to be selective about the properties they are interested in, to narrow down the number to check properly. This may be no bad thing and can prevent buyers getting carried away and bidding blind in the fevered atmosphere of the auction room.
The onus is on the bidder at auction to check that the sales particulars reflect the reality of the property being purchased. Auctions can be a means to sell problem properties, so it is essential to be properly prepared.
When the hammer falls after the bidding process a binding contract is formed between the highest bidder and the property owner. The highest bidder is committed to proceed with the purchase of the property and so if any issues are discovered afterwards which affect the Title the buyer is stuck with them. What might at first seem a dream purchase can quickly become nightmarish. A buyer should not assume there will be no difficulties with the Title. Where they are discovered after the event they can be difficult, costly and time consuming to correct.
Unless you are purchasing with cash, issues with the Title can lead on to other problems, for example preventing the buyer from getting a mortgage. It is sensible to try and have the mortgage arranged in principle before the auction. Trying to obtain an offer after the event is time consuming and puts the buyer under additional pressures. Even where a mortgage has been agreed in principle something may be discovered after the sale which causes the Lender to withdraw the offer.
Even where the mortgage lender does not formally withdraw the offer it may be that the Title issues affect the value of the property to the extent that the Lender is not prepared to advance as much money. The buyer is then left with having to make up the shortfall in a short period of time.
Once the hammer goes down the successful bidder is obliged to pay a deposit. This is usually 10% amount of the overall price and the successful bidder may lose that if they can’t complete because of Title related issues. Worse still they may have to compensate the buyer for delays in completing the purchase or lose out on the property altogether.
Time really is of the essence in the auction process. Not only is the deposit due on the day but the buyer then has to complete the purchase in 28 days. The buyer therefore has to accept the Title as it is or try to fix it within a very short period of time, with or without a Lenders support.
As part of the pre-auction Title Check, Express Conveyancing Solicitors can advise on indemnity options to correct any defective Title issues which are identified. That means you can go to the auction in a position of knowledge and take that into account when bidding. Please ask us for information about the options available.
Auction houses will have their own General terms and conditions of sale. These are combined with the Special Conditions of Sale prepared by the Sellers Solicitors. The General and Special Conditions will often seek to exclude the seller’s liability so far as possible and place the burden for any problems on the Buyer.
Often overlooked is that buyers become responsible for the property as soon as their bid is accepted meaning Insurance should be put in place to mitigate against any damage being caused to the property affecting its value.
Title checks are also particularly important if the property to be purchased at auction is Leasehold. A buyer can find themselves liable for unpaid ground rents and service charges which may amount to significant sums on top of the purchase price. Often the Seller will seek to impose a condition to make a buyer responsible for all searches, enquiries or other fees incurred by the Seller.
There may also be fees associated with the transfer of freeholds, shares in management companies and permissions needed from the freeholder for various matters. All of these can add significantly to the costs and catch out the unprepared buyer.
In Summary a Pre auction title check will
provide advice on the quality of the legal title
reveal any legal issues that may adversely affect the value of the property
allow for pre-auction advice about the options and costs of remedying any issues identified
anticipate any problems in registering the property for the buyer at the Land Registry
provide confirmation of any title issues that may prevent mortgage lenders from offering a mortgage on the property
an ability to clearly appraise the property before committing to buy
identify areas for further investigation
ensure the 28 day deadline is met to safeguard the deposit
So do buy at auction but carry out the proper checks and safeguards to make sure it is hassle free. Consult professional experts at the earliest opportunity who can help you navigate the process and avoid expensive mistakes.