Were you ever tempted to buy a property at auction?
It can be a risky business if you fail to do your research in advance.
Because when the hammer-real or digital-falls and the property is knocked down to you you must sign the contract and pay the deposit. And there is no backing out.
I am often asked to review the legal documents provided for properties being auctioned by BidX1 and other online auction houses.
One of the most important documents is the contract of sale. In this article I will take a look at that contract and tell you what you will frequently encounter.
The contract (conditions of sale)
Most of the auctions I have come across online are repossession situations-that is, the property is being sold by the lender or receiver as mortgagee in possession.
This contract is different from the usual contract you will come across because the repossessing lender or receiver appointed by the lender will have “limited information” about the property. They will, therefore, draw up the contract in a way that protects their position and allows them to qualify their obligations under the contract.
The standard Law Society of Ireland contract is made up of general conditions and special conditions. The general conditions are standard in all such contracts therefore it is the special conditions you need to be careful about and closely review.
The most recent contract I reviewed had the following special conditions:
Special conditions 1 to 2 are generic and of the boilerplate variety.
Special condition 3 is the vat clause, if there is any, and if the property is a second hand residential property vat is not an issue and this clause will be deleted.
Special condition 4 is called “Title” and says that the title consists of the PRA folio. Land Registry properties, registered on folios and accompanied by filed plans, are guaranteed by the State.
Special condition 5 states that the vendor is selling through a receiver who has been appointed by the lender on foot of a deed of appointment pursuant to the powers in the mortgage.
Special condition 6 states how the deed of transfer will be executed on completion of the transaction. Either the vendor will sign the deed or the receiver will and there will be no questions or issues raised about this by the purchaser.
Special condition 7 deals with planning and states that general condition 32, which contains a planning warranty from vendor to purchaser, is omitted from the contract. This is vitally important because you will then need to carry out your own research into the planning issues affecting the house, if any.
The condition will probably state that the receiver will provide whatever planning documents he has in his possession but will not be answering any question or dealing with any requisitions arising. This would not be the case in a normal private treaty transaction as the purchaser’s solicitor will be free to raise any questions he chooses and will expect satisfactory replies.
Special condition 8 states that as the property is effectively being sold by the holder of the charge on the property he is selling as mortgagee in possession and the charge on the folio will be cleared off once the dealing is lodged with PRA.
Special condition 9 deals with the type of family law declaration which will be furnished on closing and number 10 states the receiver/vendor will not be explaining any acts on the legal searches on completion of the sale.
Special condition 11 reiterates that it is a receiver sale and the receiver has limited knowledge about
- Declarations to be furnished
- Identity of the property
- Boundaries of the property
- Environmental issues
- Roads and services to the property
Special condition 12 limits the receiver’s liability to the amount of cash collected by the receiver which represents assets of the vendor.
Condition 13 excludes personal liability of the receiver and condition 14 limits the receiver’s liability to the extent of the insurance cover on the property.
Condition 15 states that the purchaser will not be called upon to remove any rubbish from the property and the purchaser is buying in full awareness of the state of the property.
Special condition 16 deals with notices and 17 provides that the purchaser shall not be entitled to assign the benefit prior to completion of the transaction to any other person without the prior consent of the Receiver.
Special condition 19 states that no other documents will be provided by the Receiver savee for those listed in the contract and condition 20 is an “entire agreement and representations” clause. It says that the entire agreement is as set out in the conditions of sale and no other representations or statements can give rise to any legal proceedings or cause of action against the receiver, auctioneer, or any of their employees.
Condition 21 is a severance clause which means that if any one condition is found to be unlawful or unenforceable it does not mean that the entire agreement and contract will be adversely affected.
Condition 22 deals with continents and states that no warranty is being given about any of the contents that are included in the sale and they are being sold as seen.
Condition 23 states that the deposit will be held by the auctioneer and vendors solicitor as agent for the vendor and not as a stakeholder.
The contract for a property being sold at auction needs to be carefully perused prior to the auction and if the vendor is a receiver or mortgagee in possession you can expect the contract to be drafted in a way which protects the bank and the receiver.