'Quick-fire sales' are not always that fast to process
Buyer perceptions that a receivership sale may be a 'quick-fire sale' can prove unfounded. Because many receivership properties are sold through auctions this gives the impression that such distressed property sales are processed in just a few weeks. In fact, a lot of expertise and preparatory work is required to ensure the sale process works efficiently.
It is for this reason banks are increasingly turning to fixed-charge receivers to handle the disposal of problem properties.
Usually such fixed-charge receivers are chartered surveyers with property expertise, rather than chartered accountants with business and finance expertise, who usually handle company receiverships.
A fixed-charge receiver is appointed only for property issues such as commercial and residential buildings or land. They will not take control of an existing/trading business as this traditional corporate receiverships is still very much for accountants.
The number of fixed-charge receiverships has increased over the past two years as financial institutions in Ireland have become aware of the benefits of the process once a borrower has defaulted on the terms of their mortgage.
While a fixed-charge receiver is appointed by a financial institution, nevertheless they have to act as the agent for the borrower. This means that the receiver has a duty of care to both parties and the ultimate goal is to maximise the level of return, thus reducing the level of debt which is of benefit to the lender and the borrower.
Given the severe downturn in the property market, the financial institutions are concentrating on protecting the value of their loan books, the predominant value of the loan books being the bricks and mortar.
Neil Bannon, who acts as a fixed-charge receiver for a number of the financial institutions, noted that all receiverships are a process but the reason for the process is generally caused by property related matters.
Paddy O' Connor, a senior member of Bannon's receivership team, believes that "proprieties in receivership tend to have complicated issues that require property expertise in order to provide a solution. These complicated issues or 'barriers to sale' generally include issues which property surveyors deal with on a day-to-day basis." Such issues include legal title, lease restructuring, rent abatements/arrears, rates arrears, over-holding, compliance etc.
It is a quick and cost-effective way to deal with the process as the fixed-charge receiver has the necessary property expertise to deal with the problematic properties.
Neil Bannon, who is the only Irish-based fixed-charge receiver recognised as a registered property receiver under the joint scheme run by the Insolvency Practitioners Association and the Royal Institution of Chartered Surveyors, stated that "the clear advantage of a fixed-charge receiver is the property experience and market knowledge brought to the process. A fixed-charge receiver's core skill is identifying the optimum value for real estate and the establishment and implementation of a strategy to extract this value".
It is also important for purchasers to be aware that certain difficulties may arise from receivership sales. There may be a potential gap in information on the property's history prior to the receiver's appointment.
Gaps in items such as VAT history, land/property registration, planning compliance etc. may cause difficulty for a purchaser.
Consequently, receiver sales tend to be slower than private market sales.