Be wary of the pitfalls when buying a distressed property
Earlier this summer, a woman bought back her brother's repossessed house at a Dublin property auction for €76,000. The property, a five-bedroom detached house in Co Westmeath, could have fetched €250,000 at the height of the boom.
This Friday, a ghost estate in Castlemaine, Co Kerry, goes up for grabs at Allsop Space's Irish auction with a reserve price of €50,000. The estate, Annagh Banks, includes 14 unfinished houses.
If you're holidaying around Ireland this summer, check the window of the local estate agent and chances are you will find properties for sale for a fraction of what they sold for five years ago. You're also likely to come across half-built houses for sale -- by builders who have run out of the money they need to finish properties.
Many such properties are owned by people who've run into financial difficulties.
Although the prices of distressed properties make them tempting , rushing in blindly could turn that "bargain" property of yours into a full-blown financial nightmare.
"If buying directly from a builder, the builder is most unlikely to be the owner of the property -- it's usually the bank," says Andy Smyth, a consultant with Dublin solicitors McGrath O'Donnell & Associates. "If a builder has borrowed from his bank to build the property he's selling, the builder cannot sell the property unless the bank is agreeable to the sale. The bank has the first call.
"Don't pay over money directly to a builder without ensuring that any bank who has lent money to the builder has agreed to the sale," warns Smyth.
"Otherwise you may find that you've paid over money to a builder and the property cannot transfer to you properly,"
It's important to get documentary proof from the builder that the bank is behind the sale of the distressed property, he advises.
"If you or your solicitor has any doubt about this, the builder should give permission to your solicitor to contact the bank directly," says Smyth.
Remember, a seller may not always be truthful about the property he is selling -- particularly if he is so financially desperate that he will do anything to sell his property. If your property comes with some land, for example, you might find after buying it that a local farmer has a right of way on your land -- and can drive his tractor across it at any time. Even issues like water supply might not be straightforward.
"I'm aware of one case where a landlocked property was sold and the vendor said that the property had a water supply," says Jim Stafford, partner with the Dublin liquidators, Friel Stafford.
"However, the water supply was actually through an adjoining landowner who had never been compensated for providing it -- and the landowner had turned it off."
This is where you could run into trouble if you've bought from a builder or company that is insolvent.
"If you buy a property and find out that the vendor has misled you about the property, you can usually sue the vendor -- if he has money," says Stafford. "But if you've bought from a construction company that has no money, you're stuck."
Many distressed properties -- particularly those built at the height of the boom -- have been lying vacant for some time.
"The state of the property may be a problem if it has been vacant for a long time," says Smyth.
You should always arrange a structural survey if buying a home -- but remember, most surveys are simply visual inspections and do not always identify problems lying beneath the surface.
You can get a list of all the property on Nama's books on its website (www.nama.ie). Nama, however, does not own or directly sell these properties. If interested in a Nama property, it is best to contact the debtor who owns that property first -- or the receiver, if the property securing the debtor's loans is under the control of a receiver.
Buying at auction
About half of the properties up for sale at Allsop Irish auctions are sold by receivers. Allsop Space's auction director Robert Hoban says it is important to get all the legal homework done before an auction.
"If you're considering buying a property at this Friday's Allsop auction, get a solicitor to review the property title and contract before the auction," said Hoban. You can download these documents from the Allsop website (www.allsop.co.uk).
In particular, look out for any planning conditions attached to the property you're interested in.
"You could buy a ghost estate at auction and then go to the site and find that planning permission has not been complied with," Stafford points out.
"For example, a creche might have to be built on the ghost estate to comply with planning permission -- if this creche has not been built, you will have to build it yourself and you could lose money as a result."
Planning is also something you should be wary of if you come across a distressed property in a scenic rural or Gaeltacht area. Check if the seller agreed to section 47 when getting planning permission for the property.
If this is the case, you won't be able to buy the property unless you are from, or have family, in the area, according to David O'Donnell, partner with McGrath O'Donnell & Associates. You would also have to live in the property as your main private residence for five years.
If buying property from someone who has been in financial difficulty for some time, there could be an outstanding tax bill on the property -- which you will have to pay (along with any penalties incurred) unless it is settled before you buy it.
Check if any holiday home tax (also known as the non-principal private residence tax) is owed on the property -- and if the household charge has been paid.
Sunday Indo Business