In a property market where everyone is looking for an opportunity, one increasing trend is to purchase a property from LPA receivers. In this article we look at what this means and what to look out for when doing so.
WHY IS AN LPA RECEIVER APPOINTED?
An LPA receiver is appointed where a borrower is in default under a mortgage and is typically appointed over a specific property by powers in the legal charge. The task of an LPA receiver is to take control of the mortgaged asset and recover monies for the lender by selling it. Whilst the duty of the LPA receiver is to obtain the best price possible for the property, this does provide scope in the market for better value transactions which means properties may be sold at less than the open market value in order for the LPA receiver to achieve a quick sale.
The purchase of a property from an LPA receiver comes with a number of risks for a buyer.
LACK OF INFORMATION
The LPA receiver often has no personal knowledge of the property and will sell on this basis. The receiver will give no replies to enquiries at the outset and it is highly unlikely that his solicitors will have any more information or be able to provide replies to anything beyond the documents they hold (which will usually be minimal). The receiver will also not accept any personal liability and will not give any representations or warranties as to any matters.
So whilst for non receivership transactions the usual rule is ‘caveat emptor’ (or buyer beware) which places the onus firmly on the buyer to carry out as much due diligence as it can, in receivership sales the buyer’s position is weakened further due to the lack of any information or any seller representations or warranties. It is therefore essential that any buyer inspects the property with a fully qualified surveyor and carries out as much independent investigation as possible to try and reduce the risks.
The receiver does not have title to the property as he is not the registered owner of the property, instead acting as agents of the seller to effect the sale of the property. The receiver will therefore seek to give either no warranty at all or to qualify it to the extent of his own dealings with the property.
There may be third party or other rights that the receiver is not aware of and the buyer will take subject to these. A thorough title review can of course reduce the risk of this, but again the buyer must beware.
ENVIRONMENT AND PLANNING
Receivers will typically also exclude any liability for environmental risk and will try and place the risk entirely on the buyer. It may be there is no room to negotiate this and as a minimum a buyer should seek to leave all historic liability with the seller.
In this situation, searches and surveys are vital as this will be the only way information can be obtained.
Where the property is likely to be affected by maintenance contracts or other service contracts the receiver will be unable to confirm if these have been terminated or varied and this again will need to be factored into the costs of the buyer.
FUNDING RECEIVERSHIP PURCHASES
These risks will also affect how the purchase of the property can be funded. Some lenders will be reluctant to lend where title cannot be verified against certain criteria. This will more likely be the case for institutional and historic lenders. It is less likely to be a concern to the newer entrants into the lending market, but there may be a greater premium to be paid for such loans.
Many of these risks can be offset by thorough legal due diligence, carrying out appropriate searches and making necessary enquiries of local authorities. Overall, a purchase from a receiver does carry a greater risk in terms of the information available to any buyer. However, this risk should be reflected in the purchase price and may be outweighed by commercial factors.