With the number of mortgagee sales increasing in 2012 we take a look at some of the risks involved with purchasing a property through a Mortgagee sale.
A number of the standard clauses are deleted or omitted when entering into an Agreement for Sale and Purchase with a Mortgagee, including:-
- Vacant Possession – generally a Mortgagee will remove the clause in the Agreement providing that they will provide vacant possession on settlement. If the property is being tenanted or leased, the new owner will need to comply with the tenancy or lease and provide the appropriate notices and time for the tenant to vacate. Matters can become more interesting if the previous owner is the occupant of the property and is upset about the sale as they may not wish to vacate. It would be up to the purchaser to cover the expense of having the occupant removed from the property. Owners upset over the sale may also make it difficult for a purchaser to view the property either before signing the Agreement and the Agreement may also remove the purchaser’s standard right to do a pre-settlement inspection. If any damage (or vandalism by a disgruntled owner) has occurred the purchaser will not have any recourse against the mortgagee and will have to cover the costs of remedying that damage themselves.
- Outgoings on the Property – If the current owner is in breach of mortgage payments, they are most likely in arrears of rates payments too. If the Agreement does not provide for the mortgagee to clear rates (including water rates and any ‘clean heat loan’ with the Hawkes Bay Regional Council) on settlement then the Purchaser will be liable to pay any outstanding obligations. If the purchaser is obtaining loan finance to complete the purchase their Bank will require that any rates arrears are paid up to date on settlement.
- Risk and Insurance – Risk will usually pass to the purchaser on the Agreement being signed. It is therefore important that the Purchaser obtains adequate insurance prior to signing the Agreement.
- Vendor’s warranties and undertakings – the standard terms relating to knowledge of any issues with the property and/or chattels within the property are usually deleted. A disgruntled owner may remove those items that you would normally expect to be included in the sale, such as carpets, curtains, stove, even an entire kitchen including cabinets. As a purchaser you would need to take this possibility into account and will need to ensure sufficient funding is available to funds replacement chattels should this occur.
A mortgagee sale really is BUYER BEWARE! Make sure you discuss matters with your lawyer BEFORE signing an Agreement so you know the potential issues and can take those into account when making your offer.