Problems with Legal Property Title

Hi Vincent

Listen to the advice of your solicitor. He may be able to sort out title insurance.

If you are very flush with money and can afford to speculate on what might be an absolute bargain then by all means to so.

However, if that is not the case, and your solicitor isn't comfortable or hasn't got time to make himself comfortable, then don't walk away - RUN!
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You can only do this on cash and must be able to leave the cash in long term.

There may be lots of money owed to the freeholder (and management company) that you will be required to pay. This can be bills going back 6 years. I see this as the largest risk.

Your solicitor will never be comfortable without ALL the boxes ticked.

If I could find out from the freeholder what money was owned, and make a 25% yield based on the purchase price and money owned to freeholder, then I would consider it.

Everyone else will be having the same problems….

But don't depend on EVERY being able to get any of the money you send on it out again, as it may not be possible to get a mortgage on depending on search results.

Hi Vincent
First of all congratulations on taking advice BEFORE buying the property – too many people bid at auction without getting proper advice and then find they have been sold a nightmare.

When a property is sold in the normal way the the seller gives a full title guarantee. This means that a number of “covenants for title” are implied on the part of the seller, which are set out in section 1(1) of the Law of Property (Miscellaneous Provisions) Act 1994 (if the property is in England/Wales.)

But the seller can exclude these covenants and it is indeed common for repossessed properties to be sold by the lender without giving any title guarantee. What this means is that if there was some difficulty in getting your title registered after completion because of a flaw in the title the seller could deny all further liability.

As Mark says, your solicitor could arrange indemnity insurance (including cover for lack of searches) but if you are looking to get a mortgage to buy the property then this may not be satisfactory for the lender.

Of course if you are a cash buyer then you can take a chance – I am sure your solicitor will check the title as far as possible before the auction and it is very rare for a buyer not to end up with registered title after completion.

14 days between auction and completion does not give much time to arrange things so you will need to make absolutely sure you have the finance in place (especially if you are getting a mortgage) so that the funds will be available in time. Also make sure that your solicitor is geared up for this – you don't sound over-confident and it might just be worth looking for a firm that can offer a swift service for auction-buyers.

Vincent, the lack of title is, from my experience, not customary at auction. There is normally a "legal pack"which should contain evidence of title, service charges etc. If it doesn't ask yourself why? Do other properties in the auction have them? If they do and this one doesn't then alarm bells should ring. I am also thinking that it's a leasehold house with 992 years left. So I am guessing that the lease would have started with 1000 years. Now if this is the original lease and it's only 8 years old then there should be title details available on Land Registry for £3. If it's a lease extension and the original lease was taken out years ago then that may not be on Land Registry. But it's worth taking a look. BUT please take heed of what Mark, Tony, and Ian have said. Listen to your legal adviser and if he and you are not happy then walk away.

Thank you to all respondents for the helpful info. The problem with this property is also that the freeholder was the original developer (deveiopment of 8 houses built in 2006/7) and the company went into liquidation in 2008. There is no current freeholder/managementt company. The house was repossesed in 2013 and 2 subsequent sales fell through because it was not possible to obtain a Mortgage because of lack of Freeholder. There was a mortgage (and still is ) on the property. The current leaseholder has walked away. The liquidator has legal power to sell on behalf of the bank.

I am a cash buyer so a mortgage not an issue however on resale the title would need to be good to maximise sale value. My solicitor has advised me that having reviewed the legal pack she can confirm that title would be good, She further advised that after owning the property for 3 years I can apply to the appropriate treasury department to purchase the frehold (approx cost £2000).

The only charges for the lease are £150 per annum ground rent so my liability as a maximum should be £900 for 6 years, if it has not been paid.

On the financials the proerty has a guide of approx half its full value with a probable rental yield of at least 12% gross.

I have managed to scource an indeminity policy to cover title, lack of searches and chancel repair liability so hopefully all should br good. My solicitor is only now concerned about the lack of searches and she is going to review the proposed indemnity policy to ensure it provides adequate cover. If it does all should be OK to proceed.

As a final comment I can say that my solicitor (recently engaged by me for another BTL which fell through) has been absolutely superb managing to arrange the previous BTL purchase to exchange and complete on the same day after only three weeks. We unfortunatley had to pull out on the day of exchange/ completion after we discovered that there was a serious problem with drugs/vandal/youths on the doorstep of the property . Additionally despite carrying out a significant amount of work she only charged me the cost of the searches, all in all I am very impressed with the service provided.

Any further thoughts/ comments would be much appreciated.

Good to hear that your solicitor is on the ball.

As there is no freholder at present you should add a missing freeholder/management company policy to the bundle of indemnity policies you need if you do buy the property.

As there is no management in place your main concern will be the probable lack of proper buildings insurance for the block. This would normally be arranged by the freeholder but in these situations where the building is not being properly managed individual flat-owners often arrange insurance themselves. I think that missing freeholder indemnity policies do provide back-up cover in the worst-case scenario, but ask your solicitor to check.

Since the building is fairly new then hopefully there will not be any major problems with repairs or maintenance for a while, but if such work does become necessary that can become a problem when the freeholder is missing.

If your bid is successful I would definitely investigate acquiring the freehold as soon as possible – perhaps in conjunction with other flat owners. I can give some further comments on that, but just need to check a few points on company law first (not my speciality.)

Re my previous comment – first of all, I overlooked the fact that you are looking to buy a house, not a flat. In that case there should not be any problem regarding the missing freeholder as you would normally have to insure and maintain a house yourself even if it is leasehold.

The only situation where there could be a problem is if the property is part of a small development where there is supposed to be some sort of arrangement for management of communal property, e.g. a private access road.

If you go ahead with the purchase you would probably have the right to buy the freehold after you have owned the property for 2 years under the Leasehold Reform Act 1967.- you would need to get your solicitor to check that the lease does qualify.

However you don't have to wait two years, you could try to buy the freehold earlier. If the company which owned the freehold went into liquidation, it might still exist or it could have been wound up and removed from the register of companies. If you have got the company's name you can check on the Companies House website whether or not it is still registered. (Assuming that the company was registered in England or Wales.)

If it is still registered you could apply to the liquidator (details should also be available from Companies House) to buy the freehold.

If the company has been wound up and removed from the register then (unless it was a foreign company) its assets will vest in the Crown as what is called bona vacantia. In this case an application can be made to the Treasury Solicitor's Department (bona vacantia division) about buying the freehold.

In either case I expect they would be prepared to sell on a voluntary basis without you having to go through the statutory procedure.

If the company is not registered in the UK you would probably have to wait until the two-year period has expired and then if the freeholder cannot be traced an application can be made to the County Court to acquire the freehold.

If you got cash and time on your hands, you may get yourself a nice bargain, it can be rented out while you sort out the issues with the freehold, expect to pay a few £K to sort them out.