Buying a property at auction... after some technical advice!

[Porkupine]

After some advice on this. Clearly the easy answer is...if you don't know what you are doing and don't want any risk, don't bother.

However, I have come across a property going for auction shortly, it is a reposession. I have read all the legal pack and feel most of it makes sense and is understandable.

One specific thing I have noticed on the LR document is that there is a charge from the mortgage lender (listed first on land registry, so I assume is first charge).
BUT there is also a second charge from DWP. Which I find odd. But perhaps the previous occupant had a secondary loan or something I can assume.

The special conditions say 'limited title guarantee'.

The auctioneers have told me this condition is 'normal for any reposession being sold as the seller (the bank) has never lived in the property'

I think I can accept that and assume we will be given full title if we win the bid. But what happens to the second charge with DWP? Am I correct to assume that would be cleared on completion by LR? Because the first charge effecitvely wins.

Secondly, there is a special condition that says any arrears stay with the property. Again I feel this is a generic condition they put in on all reposessions, but I am reserarching ground rent and service charge arrears in case they are not paid off on completion.

Anyone who deals with this sort of stuff, please do PM and happy to take your advice on a professional level. My main curiosity is around the title.

Or anyone who is happy to assist in general on this thread, that would be much appreciated.

[Sir Bagalot]

I would be assuming the second charge would be yours to clear on completion.

[hidetheelephants]

IANAL but surely all charges are paid out of the hammer price, so the DWP get paid, the bank get their pound of flesh and if there's any left it goes to the debtor? It doesn't make any sense otherwise.

[Porkupine]

I agree it wouldn't make any sense for the charge not to be cleared on completion.
But don't really want to be making assumptions about something so imporant.
Any professionals able to help with this question? Again, happy to engage you on a professional level / pay a fee to have an answer on this!

From what I now understand, the answers are here and state that the second charge should be cancelled if I am understanding it correctly. But again, if anyone has the simple answer, I would appreciate it.

https://www.gov.uk/government/publications/transfe...

Many thanks.

[Portia5]

Ask the conveyancer who's handling the purchase for you to take a look at it.

[Mr Pointy]

hidetheelephants said:

IANAL but surely all charges are paid out of the hammer price, so the DWP get paid, the bank get their pound of flesh and if there's any left it goes to the debtor? It doesn't make any sense otherwise.

But that's not the order of payment is it? It's possible the sale will raise less than the mortgage so the costs get paid, then the holder of the first charge get the next lump but if this is less than the mortgage then there is nothing to pay off the second charge. What happens to it? Does it just evaporate, does it stay with the property or does the new buyer have to pay it? Obvioulsy one for proper paid advice.

[C Lee Farquar]

As above, I'm sure you'll be seeking proper, paid advice.

It's a long time since I bought a distressed sale and IIRC the solicitor acting for the sellers had to confirm to us before completion that the charges would be satisfied on completion.

If a Party with a charge is going to be left short they have to agree to take less or the sale shouldn't go through.

A charge doesn't disappear if unsatisfied at completion.

[hidetheelephants]

Surely the creditors have to agree to the possibility of a shortfall, or set a reserve accordingly? Otherwise it can't go to auction.

[EViS]

I would also be curious to know the answer to this scenario as opposed to making an assumption. Did you manage to get a definite answer to this, OP?

[Porkupine]

From what I now understand, LR have rules around this and will cancel the second charge. It is also in their guidance as I linked above. This was confirmed by a conveyancing solicitor.
I have not yet been through the process, so we shall wait to see if that is what materialises, but that is the advice I have relied upon!

[Panamax]

Porkupine said:

From what I now understand, LR have rules around this and will cancel the second charge.

I've never heard that before. the whole point of a charge is that it stays on the property until the lender confirms the money has been full repaid with interest.

If the first charge is cleared away the second charge becomes the new first charge, it doesn't evaporate into thin air.

Porkupine said:

"there is a special condition that says any arrears stay with the property."

If that's what the wording says then don't assume it means something else. At the very least you'd want to know the extent of any arrears that are going to land in your lap.

Porkupine said:

This was confirmed by a conveyancing solicitor.

I sincerely hope that was solicitor you were paying to give specific advice on the point.

[Deesee]

Porkupine said:

One specific thing I have noticed on the LR document is that there is a charge from the mortgage lender (listed first on land registry, so I assume is first charge).
BUT there is also a second charge from DWP. Which I find odd. But perhaps the previous occupant had a secondary loan or something I can assume.

Ok, 1st charge normal, 2nd charge, DWP... Care fees, lack of martial/family maintenance, or something long those lines

Porkupine said:

The special conditions say 'limited title guarantee'.

You you normally see this if the vender is a trustee, in this case it could be bankruptcy.. death or similar, however the pack staes repossession. You can get an indemnity against a limited title guarantee. This would need greater explanation than you have been offered and you & your solicitor would need to be satisfied with the response.

Porkupine said:

I think I can accept that and assume we will be given full title if we win the bid. But what happens to the second charge with DWP? Am I correct to assume that would be cleared on completion by LR? Because the first charge effecitvely wins.

TBH IMO you're better off making a pre auction offer on condition of a fully clean/clear title or purchase of freehold/transfer of leasehold title.

If this is a particularly desirable property then go and see and take advise (as per other posters) with a solicitor & potentially explore an indemnity.

If this is a flat somewhere not desirable that seems to be cheap, you have uncovered enough cautionary flags..


Good Luck and keep the thread UTD.

NB @ Panamax and @ C Lee Farquar have covered points you should heed.