Everyone loves a bargain.
And buying property from a mortgagee in possession or receiver acting on his behalf is becoming more commonplace in Ireland.
Regardless of whether you buy at an Allsop’s type auction or by private treaty there are a few unique features of buying from a receiver or mortgagee in possession.
Some of these unique aspects could, quite frankly, cost you a lot of money.
Let’s take a look at them.
The Contract for Sale
The standard Law Society of Ireland contract for sale will be heavily amended and/or qualified by the special conditions inserted by the solicitor acting for the mortgagee in possession. This is to reflect the limited information and knowledge of the lender or receiver about things like:
- Notices received by the legal owner/previous occupant
- The services to the property.
The contract for sale therefore will have a special condition setting out the limited knowledge of the receiver about the property and you are purchasing in full knowledge that no warranties are being made in respect of these issues.
Standard pre-contract enquiries that a purchasing solicitor would make will not be replied to in a receiver’s sale and the purchaser and his client will need to be careful to make their own enquiries as best they can.
The Purchaser’s solicitor will generally be furnished with replies to the standard Objections and Requisitions on title along with the contract for sale. However this is as far as the receiver will go and further enquiries will not be entertained or answered.
The receiver sale may well provide a great opportunity to purchase a good value property, but it will be very much on a “take it or leave it, here’s the deal” basis.
In an ordinary, “non receiver” sale there may be some negotiation between the parties about certain conditions of the contract. This is not the case with a receiver sale and conditions tend to be non-negotiable.
A receiver is appointed by the lender by deed of appointment on foot of the mortgage document. The receiver will act as agent for the legal owner of the property and his powers will be set out
- In the mortgage document and
- In the Land and Conveyancing Law Reform act 2009 in respect of post 1/12/2009 mortgages and in the Conveyancing Act 1881 in respect of pre 1/12/2009 mortgages.
Because the receiver acts as agent of the legal owner he does not have the same powers as the mortgagee in possession. The most important power he does not have is the power to sell the property free of all interests, rights, and estates in respect of which the mortgage has priority.
Therefore, if any charges, judgments, or mortgages are registered after the registration of the mortgage and charge the receiver may give possession of the property to the mortgagee in possession to complete the sale.
When the mortgagee in possession, that is the lender, completes the sale he effectively wipes out those burdens/encumbrances by “overreaching” and sells the property free and clear of the burdens.
Section 104 of Land And Conveyancing Law Reform Act 2009 confirms the position:
104.— (1) A mortgagee exercising the power of sale conferred by this Chapter, or an express power of sale, has power to convey the property in accordance with subsection (2)—
[CA 1881, s. 21(1)]
(a) freed from all estates, interests and rights in respect of which the mortgage has priority,
(b) subject to all estates, interests and rights which have priority to the mortgage.
(2) Subject to subsections (3)(b) and (4), the conveyance—
(a) vests the estate or interest which has been mortgaged in the purchaser,
(b) extinguishes the mortgage, but without prejudice to any personal liability of the mortgagor not discharged out of the proceeds of sale,
(c) vests any fixtures or personal property included in the mortgage and the sale in the purchaser.
(3) This section—
(a) applies to a sale by a sub-mortgagee so as to enable the sub-mortgagee to convey the head-mortgagor’s property in the same manner as the mortgagee,
(b) does not apply to a mortgage of part only of a tenancy unless any rent which is reserved and any tenant’s covenants have been apportioned as regards the property mortgaged.
(4) Where the mortgaged property comprises registered land, the conveyance is subject to section 51 of the Act of 1964.
Buying from a receiver or mortgagee in possession can give you the opportunity to buy a bargain; but you do need to do your research and due diligence carefully and listen to your legal advisor.