If you are buying or selling a house now there’s a good chance you’ll be part of a chain.
Do you understand what this means? Or how frustrating it can be?
Let me explain.
Let’s say you are a first time buyer and you come across the perfect property. You get your finance approval, succeed in the bidding war, and secure the property by paying a booking deposit to the auctioneer.
Once the contract is issued to your solicitor, and you’ve received your loan offer and had a structural survey carried out, you are anxious to see things progress to completion and handover of the keys.
Then you discover the effects of being in a chain.
Because once you sign the contracts things appear to grind to a halt.
You ring your solicitor every day asking for “any news?”, but the answer is always the same: “afraid not”.
You’ve no idea why. But soon you discover the reason: you’re in a chain!
This means that the people you are buying from-let’s call them Harry and Jenny-are themselves buying another property. And until they have secured the other property, Harry and Jenny will not return signed contracts to your solicitor.
Because if they do, they will be legally committed to selling their home to you. And if their proposed new purchase falls through they will be homeless.
Harry and Jenny are trying to buy a 4 bed house in Mullingar, ideal for their growing family of 4 kids.
So, Harry and Jenny will not return signed contracts to your solicitor until their solicitor receives signed contracts from the solicitor acting for Mick and Geraldine, the owners of the 4 bed in Mullingar.
Mick and Geraldine, too, are moving on. Their family has grown up and moved away and the big property they live in in Mullingar is too big for them, Mick is fed up cutting a quarter acre of lawn every weekend, and they want to move into something smaller and more manageable.
Mick and Geraldine are trying to buy a 2 bed apartment in Islandbridge. But the developer of the islandbridge development went into receivership when the stuff hit the fan after the economy collapsed in 2007/2008, and the receiver is still working his way through the developer’s assets.
The receiver will need the written approval from the lending institution that appointed him, so Mick and Geraldine will be waiting on contracts to issue, with the appropriate approval, and become binding before they can sign the contracts for the sale of their property to Harry and Jenny.
And until that happens, Harry and Jenny’s solicitor cannot return contracts to your solicitor.
This is a basic property chain, and they are becoming more evident in Ireland in 2017 with the increased levels of activity in the property market. The drying up of property supply also means that the chain is probably more likely to be encountered because there is nowhere for vendors to rent for 6-12 months. Therefore, unless and until they have secured a suitable property, they are not inclined to move.
Like any chain it is only as strong as the weakest link. For example, if the receiver is unable to get the letter of approval from his lender to sell the Islandbridge property, Mick and Geraldine will be staying put for the moment.
Obviously this means that Harry and Jenny won’t be going anywhere, they will be staying where they are, and you will not see a signed, binding contract from them anytime soon.
None of what I have written about above deals with the actual problems that can arise when it comes to completion day.
You as purchaser will need to ensure that your solicitor has the funds to complete the transaction. But the vendors of the property you are buying, Harry and Jenny, will need your money to complete their purchase from Mick and Geraldine.
And Mick and Geraldine will need Harry and Jenny’s money to purchase from the receiver of the bust developer.
Throw in the desire of one or more parties to vacate their old house and move to their new house on the same day and it is easy to see how taut and fraught the chain can become.
Being part of a property chain like this can be extremely frustrating and stressful.
At the outset you should make enquiries early in your negotiations because you can avoid it if you discover the vendors of the property you are buying from are themselves dependent on securing a property now, and their sale to you depends on that.
Unfortunately I have seen a few situations where it is only after a purchaser signs a contract in good faith that they are then told that they are in a chain.
It’s a bit late finding out then, quite frankly, and strikes me as a little unfair.
Are you thinking about buying or selling a residential property?
If you have ever wondered why the purchase or sale of a house in Ireland appears to take ‘so long’, this piece will set out the steps in a residential conveyance and give you a good overview for a better understanding.
What is Conveyancing?
Conveyancing is the term used to describe property transactions, and the transfer of legal ownership of immovable property.
A conveyancing solicitor will represent one of the following parties:
The conveyancing process will generally involve 5 stages:
a) pre contract
c) post contract/pre closing
e) post closing/completion.
A Written Note/Memorandum
A contract for the sale of land, in order to be enforceable, must be in writing or a memorandum or note of the agreement must exist.
The steps in a conveyance in Ireland are designed to ensure that a purchaser is not obliged to go to the cost of carrying out a full investigation of the title being offered before the vendor is legally obliged to sell.
It is only when contracts are exchanged and binding on both parties that full examination of the title is carried out by way of the purchaser’s solicitor raising “Objections and Requisitions on Title”.
Objections and Requisitions on title are queries and requests raised in respect of the vendor’s title and other matters relevant to the property being sold.
The standard documentation used in a residential conveyancing transaction in Ireland are
the Law Society Contract for Sale (current version is 2009 one)
There are 2 systems of registration of property in Ireland:
the Registry of Deeds and
the Land Registry.
Registry of Deeds properties tend to be in urban areas, for example Dublin, and the important thing to understand about these properties is that it deals with registration of documents, not registration of title.
The Land Registry, controlled by the Property Registration Authority, deals with registration of title and there are many counties which are compulsorily registerable eg Kildare, Meath etc.
Land Registry Documents
Land registry documents comprise a folio of a property which is in 3 parts:
part 1 gives details of the property and a map reference
part 2 gives the registered owner and class of title
part 3 lists the burdens on the title eg mortgages/charges.
Ownership of land registry property is transferred by a deed of transfer but title only passes when the transfer has been registered in Land Registry.
Please note that the list below is not exhaustive and ‘issues’ can arise at any time which may hold up the sale/purchase.
The vendor’s solicitor will need to take the following steps:
Check the seller’s title to the property.
This will involve taking up the title deeds, either from a lending institution or the vendor.
Check what sort of property is being sold eg residential home, commercial premises, licensed premises, etc.
Check that planning is in order for the property
Check the Family Home status of the property, and if it is held in sole ownership, to obtain the prior written consent of the spouse, if there is one
Ascertain whether the seller has received any notices which affect the property (eg from a local authority re compulsory purchase)
Check whether there are any flaws in the title to the property
Give the vendor a ‘section 68’ letter setting out costs and outlay which will arise
Prepare the contract for sale
Reply to requisitions on title (see below)
Draft the Family Law declaration setting out the position re the Family Home Protection Act, 1976
Check the position re outgoings for the property and see that they will be discharged prior to closing
Arrange for closing of the sale
Find out what mortgage is outstanding on the property to ensure discharge of same once funds are received from the purchaser’s solicitor
Discharge any undertakings given on closing
The purchaser’s solicitor will need to:
Read the contract and related documentation, check the title, and any special conditions in the contract
Advise the purchaser to have a full structural survey on the property carried out¹ because when buying a second hand property the principle of “caveat emptor” (buyer beware) applies
Advise on tax such as stamp duty which will be payable and ascertain whether there are any tax reliefs available
Advise the purchaser to take out insurance as the property may be underinsured or not at all and if the purchaser is taking out a mortgage the lender will want evidence that insurance is in place prior to releasing the loan cheque
Make pre contract enquiries including planning
If the contract is to be made subject to loan approval, check the relevant clause in the contract providing for this
If the contract is to be made subject to a satisfactory structural survey, draft the required clause for inclusion in contract
Give the purchaser a section 68 letter setting out his fees, outlays, and costs which will be incurred
Ensure purchaser has loan approval
Get the purchaser to sign the contract, assuming everything above is in order
Raise requisitions and objections (if any) on title
Setting out the closing documentation required and furnishing same to the vendor’s solicitor
Draft the deed of transfer to transfer the interest in the property to the purchaser
Decide on and requisition all searches to be carried out
Ensure finance will be in place to close the sale
Ensure stamp duty is paid and have the transfer registered either in Land Registry or Registry of Deeds.
¹The doctrine of “caveat emptor” (“buyer beware”) applies to the physical description of the property. The purchaser must satisfy him/herself as to the boundaries and condition of the property. This is why a purchaser must have a full structural survey carried out prior to signing the contract.
The vendor is not under a duty to disclose any physical defects in the property.
The purchaser’s solicitor needs to
check that he/she can acquire good marketable title on behalf of the purchaser
check that the title being provided is contracted for in the contract for sale
check the property in the contract is properly and adequately identified in the title documents.
Conflicts of Interest-Acting for Both Parties in a Conveyance
3. A Solicitor may not act for both Vendor and Purchaser in a Conveyancing Transaction except:
3.1 a Conveyancing Transaction comprising only the voluntary transfer of Property which is a Family Home or a Shared Home either (a) from its owner to the joint tenancy of the owner and his/her spouse or Civil Partner or (b) (where the Property is owned by spouses or Civil Partners otherwise than as joint tenants) from the owners to themselves as joint tenants;
3.2 a Conveyancing Transaction in which the Vendor and the Purchaser are Associated Companies or, in a case in which one such party comprises one or more individual persons and the other is/are a company or companies, in which the parties are Associated in accordance with Clause 2.2;
3.3 a Conveyancing Transaction where the Property being transferred is held under a bare trust and —
3.3.1 is being transferred by existing trustees to new trustees; or
3.3.2 is being transferred by trustees to a beneficiary;
3.4 a Conveyancing Transaction for value in which both the Vendor and the Purchaser are Qualified Parties and:
3.4.1 the Solicitors’ firm concerned has requested the Vendor and the Purchaser to consent to its representing both of them and has notified them in writing that it may have to give them conflicting advice and of the measures it proposes to implement in relation to such representation. Such notification shall include a statement that if a dispute shall arise between the Vendor and the Purchaser during or after the Conveyancing Transaction which is likely to result in litigation or threatened litigation (including arbitration) between them concerning the Conveyancing Transaction, the Solicitors’ firm will not act for either party in such dispute or litigation and will cease to act for both of them in the Conveyancing Transaction; and
3.4.2 following receipt of the notification at Clause 3.4.1, both Vendor and Purchaser have consented in writing to the Solicitors’ firm representing both of them on the basis specified in such notification.
Buying a House-General Tips
If you are looking at houses for sale in Ireland there are a number of priority tasks that you will need to take care of to ensure a sound investment.
You will still need to ensure
1. You have obtained finance
2. You have instructed a solicitor to act on your behalf.
At Terry Gorry & Co. Solicitors we can ensure that you are professionally represented at each stage of the purchasing process from drawing down finance to completion of your house purchase.
For example, if you are buying a second hand house in Ireland we will do the following as a matter of course:
Purchasing second hand properties
Your solicitor will
Inspect the title to the property and ensure that it is in order
Carry out searches against the property, the vendors and you as the purchasers to ensure that there are no outstanding judgments or claims on the property or issues likely to crop up to cause a hitch
For your part as the purchaser you will need to ensure that you have written loan approval before signing contracts and that you have a surveyor or engineer carry out a full survey of the property to check for any structural defects or other problems.(This is part of the property purchases and sales series on this site)
If this is not done then when you sign the contracts it will be deemed in law that you were aware of any problems before signing and even if these problems become apparent later on.
You engineer’s survey should also be helpful in relation to any extensions, alterations or conversions that may have been carried out on the property which may have planning implications. If this is the case then proper planning documentation will need to be supplied by the vendor’s solicitor with the title deeds.
You might also check with the local Gardai who may let you know about any social/crime problems in the area which you might not be aware of.
Generally you will need to pay 10% of the purchase price as a deposit on signing the contract to buy. It is advisable at this stage to insure the property as once you have signed the contract you are committed to completing and should the house go on fire in the meantime you could face a severe financial loss.
There will be a closing date for completion in the contract and once you sign you are committed to completing on time which can leave you open to a liability for daily interest on the full purchase price.
Clarifying and advising us of the situation with regard to the contents is also important as is carrying out a final inspection before completion to ensure that the house is left in an agreed condition and the garden is not full of rubbish which should have been disposed of by the vendors.
Checklist for Vendors of Residential Property
When selling a residential property your solicitor will need certain information from you to ensure a smooth, efficient, timely transaction.
Below you will find a checklist of information that will be required:
• Which are shared and which are in common with other properties?
• Are there any special agreements re boundaries?
• All maps and identity of the property to be checked
• Capital acquistions tax certificate of discharge?
• Probate tax certificate of discharge?
• Capital gains tax clearance certificate?
• VAT applicable? Not normally on second hand residential properties
• PPS numbers?
12. Body Corporate/Trustee
• Memo and articles of association
• Companies office search
• Trust instrument
13. Family Law
• All relevant State family law certificates?
• Is the property anybody else’s family home?
• Any other information re family law proceedings/separation etc.
• Consent to assign
• Consent to change of use
16. Fee Simple Acquired?
Increase to full replacement value if necessary.
Checklist for Purchaser of Residential Property
1. Details of the Vendor
Solicitor for vendor
Deposit/equity from sale of property
Name of lending institution
Loan application status
Structural survey/fire cover/life cover
Loan pack from bank?
3. Items included in Sale
4. Purchase of Part of Folio?
Easements including rights of way/right to light/services/maintenance
5. Structural Survey
Inspection by expert independent of lending institution
Valuer’s report for lending institution
Planning search before signing contract-check local planning office
Change in planning?
Change of use/intensification of use?
Fire certificate/building regulations?
Cover from date of signing contract
Good Marketable Title
When buying a property in Ireland, it is essential that you obtain what is known as “good marketable title”.
As the old saying goes in relation to property: “the day you buy is the day you sell”.
Many lending institutions will not advance monies where the title being offered as security is not going to be good marketable title and where the solicitor is going to have to “qualify title”.
“Title” when speaking about property is evidence of ownership of a particular person of an interest or estate in property.
“Good title” is where a vendor of property can prove that they are the legal owner of a certain estate or interest in a property. Note that 2 or more people could have an estate/interest in a property, for example, a freehold owner and a leasehold owner in respect of the same property.
“Good marketable title” is not statutorily defined. However it means the standard of title which is given and accepted by conveyancing solicitors following good conveyancing practice and rules set out by the Law Society of Ireland.
A “certificate of title” is an approved (by the Law Society of Ireland) form of certificate of title which is accepted by lending institutions arising from prudent standards of conveyancng in Ireland. This would include, inter alia,
The use of the standard Law Society of Ireland contract for sale (2009 edition is the current one)
Investigation of title is carried out using the Law Society approved Objections and Requisitions at a minimum
A freehold title or
Leasehold title with at least 70 years unexpired or
If a Land Registry leasehold title, it must be either “absolute” or “good” leasehold.
The “certificate of title” system only applies to residential property conveyancing.
It allows the lender to permit the solicitor for the purchaser to investigate title and gives responsibility to the solicitor for having the mortgage registered in the bank’s favour and secured on the property.
Certificate of Title System
The Certificate of Title System obliges the purchaser’s solicitor to give an undertaking and a certificate to the lender in a format agreed between the Law Society and the lenders. The undertaking and certificate of title are provided by the lender in his/her capacity as the borrower’s solicitor; he/she does not act for the lender.
In practice, once the loan is approved for the purchaser, the documentation containing the solicitor’s undertaking and certificate of title together with the loan offer and mortgage deed are sent to the purchaser’s solicitor.
The lender will only release the loan cheque when it has received the solicitor’s undertaking. This undertaking obliges the solicitor acting for the purchaser to ensure that
The purchaser is acquiring good marketable title to the property
The mortgage documentation is completed properly and signed by the borrower
The mortgage ranks as a first legal charge on the property
All necessary documentation is properly stamped and registered in the Registry of Deeds or Land Registry
All documentation including certificate of title is furnished to the lender.
Qualifying the Solicitor’s Undertaking
In some circumstances, for example where the solicitor is not able to obtain “good marketable title” perhaps due to a planning difficulty with the property, the solicitor will have to qualify his/her undertaking.
If this is necessary, it will have to be cleared in advance with the lender as the bank may not agree to it and may withdraw the loan offer.
“Good title” derives from a good root of title which has a number of characteristics:
It is a document or instrument of disposition
Dealing with the ownership of the whole legal and equitable estate in the property being sold
Without the aid of extrinsic evidence and
Showing nothing to cast doubt on the title of the disposing parties
It adequately identifies the property
It must be of a certain age (at least 20 years old).
Land Registry Titles
However, much of the above does not apply to a Land Registry title as title registered in Land Registry is guaranteed by the State and the Land Registry folio is evidence of ownership of the land by the registered owner.
You are entitled to rely on the Register of properties at the Land Registry without looking behind it and the State guarantee that the register is correct. However, where a title is qualified, it may merit further investigation.
Registered Titles at Land Registry
There are 3 registers kept by Land Registry:
Subsidiary (deals with fishing rights, rent charges, etc.)
Classes of Ownership
There are 4 different types of owner possible at Land Registry:
Full freehold owner
Full leasehold owner
Limited freehold owner
Limited leasehold owner
A tenant for life would be a limited owner.
Classes of Title
The different classes of title include:
Absolute-requires no further investigation
Possessory/subject to equities-requires investigation to enable conversion of title to absolute/good leasehold
Good leasehold-Land Registry has investigated the title of the lessee, but not the lessor
Qualified-this is the same as an Absolute title save for the fact that it is qualified in some way, and will require investigation when purchasing.
A Good Conveyancing Solicitor
So, a good conveyancing solicitor, when acting for you as purchaser, is seeking to
Investigate title to ensure you get “good marketable title” and
Ensure that the title being provided is that contracted for in the contract for sale and
Ensure the property contracted for is adequately identified in the title deeds.
As you will see from the above, purchasing a house does involve a lot of factors that you may overlook without sound legal and professional advice.
The price of such advice may appear to be costly at first glance but when you consider the consequences of a purchase or sale going wrong and the steps needed to prevent this, the cost over the lifetime of your investment, and home, is tiny.
Mortgages and Charges in Property Transactions
Mortgages and charges, and the different types of mortgages and charges can be confusing for many small business owners and home-owners.
A common question asked is “what is the difference between a mortgage and a charge?”
There is a significant legal difference between a mortgage of a registered property and an unregistered property (the latter is registered in the registry of deeds, the former is registered In the Land Registry)
The difference in reality is that a registered property is ‘charged’ ie a charge is registered on the property at Land Registry on the property but no formal transfer of ownership takes place.
An unregistered property is actually conveyed, assigned or leased by the borrower to the lending institution subject to the borrower’s right to redeem(pay off) the loan in the property. But title formally passes to the lending institution under the mortgage deed.
The Mortgage Deed
This document states that the lender has made a loan available to the borrower and the borrower guarantees to repay the loan by securing the loan against the property.
The mortgage deed will also contain a number of other covenants as a matter of course including
* A covenant to the effect that the property must be used as the borrower’s principal private residence
* A covenant to not carry out any development on the property without the consent in writing of the lender
* A covenant to insure the property and the interest of the lender noted on the policy.
It is important to bear in mind that these are standard covenants in mortgages with the main banks; it is crucial to read or have a legal professional read the additional covenants if dealing with a sub-prime lender or a smaller financial institution.
It is important to note that the mortgage document will often refer back to the letter of loan offer which may contain additional covenants and conditions. It may also contain additional circumstances which covers the event of default in mortgage payments.
Types of Mortgage
1. Principal Sums
This mortgage is for a fixed sum; it is less used in practice now as most banks will issue ‘all sums due’ mortgages.
2. All sums due
There is generally an all sums due clause in most mortgages now and this has a significant impact on a person’s finances if they do not know what it means.
It means essentially that the borrower is pledging their property not just for the property in question but for ALL indebtedness to the bank, now or in the future.(credit card, car loan etc.) This is obviously of huge importance as many people will spread their financial exposure between various banks in an attempt to create a wall between different loans but this clause means the bank can use the house as security for all borrowing.
Other types of mortgage include annuity and endowment mortgages, although the latter have become less frequent.
Selling Your Property and Your Mortgage
When selling your house your solicitor will take up your title deeds from the lending institution on accountable trust receipt (ATR). This means that your solicitor will give an undertaking to hold your deeds in trust for the bank and then discharge your mortgage once the sale has closed-this is called vacating the mortgage. It is vital therefore that your solicitor checks with the bank that the sale proceeds will be sufficient to discharge all indebtedness secured against the property, not just the home loan.
Your solicitor, when drafting the contract for sale, will insert a special condition that the property is subject to a charge (mortgage) and this will be discharged on closing.
When you are buying a property your solicitor will probably insert a special condition making the purchase subject to loan approval. The drafting of this clause is important as it needs to cover circumstances where you have a loan offer but are unable to comply with some of the conditions of the loan offer.
It should also provide for either party rescinding the contract should loan approval not be forthcoming.
In residential transactions, your solicitor is required to give an undertaking, together with proof of professional indemnity insurance, and certificate of title to the lender in an agreed format with the Law Society of Ireland. This undertaking and certificate of title documentation is sent to your solicitor once your mortgage is approved.
The bank will only release the loan cheque to allow completion of the sale when they have received the solicitor’s undertaking duly completed. The undertaking obliges the solicitor to ensure
that the borrower will acquire good marketable title to the property
that the borrower has executed all the necessary loan documentation, mortgage deed etc.
to register the mortgage in the appropriate registry (Registry of Deeds or Land Registry) as a legal charge on the property
to lodge the title deeds and the solicitor’s Certificate of Title with the lender.
Circumstances may arise, for example if there is an unauthorised development on the property, where your solicitor will have to qualify the undertaking. Any such qualifications must be cleared in advance with the lender.
Borrower Falls Behind in Payments
Where a borrower falls behind in his/her payments there are a number of options open to the lender.
These include suing the borrower for the amount outstanding but this is unsatisfactory as the amount outstanding is likely to increase. The lender is going to want to exercise its power against the security for the loan..
This procedure is rare in Ireland and involves the bank taking court proceedings to have the borrower’s interest wiped out and the bank becoming owner of the property.
Court order for possession and then sale
This is more common in Ireland and the bank has the power to sell the property without going to court, in accordance with the terms of the mortgage.
However they will be unable to sell without vacant possession so they will go to court to obtain an order for possession.
If the property is commercial the bank will appoint a receiver on foot of their mortgage and his duty will be to receive any rents due and pay them towards the mortgage and to manage the property with a view to an ultimate sale.
If you are buying or selling a house, we would be happy to discuss with you and provide you with a competitive no obligation quotation.
Simply email firstname.lastname@example.org or call 046/95 49 614.