Indemnity Policy to Cover Undervaluation

wacko2k

I'm in the process of purchasing a house the has been refurbished by a developer. The developer purchased the house for £85,000 7 months ago and my agreed purchase price is £116,000, an increase of approx. 36%.

I believe the developer purchased the house from an elderly couple that wanted to move to a bungalow.

The house has been valued by my lender so I'm happy that the agreed price is not overvalued, however my solicitor is concerned that the developer may have purchased the price at an undervalued price.

They have told me that if a relative of the previous owners were to claim that the house was sold at a undervalued price or the developer were to go bankrupt in the future I could be responsible for the difference between the true value and the £85,000 that the developer paid.

Therefore they are asking for evidence that the work carried out by the developer justifies the increase in value otherwise they say an indemnity policy will need to be taken out to cover an potential future claim.

Does this sound right? If so what sort of policy would I need to take out?

Radiantsoul

The issue would presumably be if the old couple were made bankrupt then action could be taken against the developer as the sale of the property might have been seen to place the other creditors at a disadvantage. But presumably the action would be against the developer rather than you.

The old owners freely sold the house and as you were not party to that deal they can't claim against you. The developers have presumably gained from the supposedly cheaper price and so if the developers go bankrupt it won't effect you either.

It strikes me that if the old owners went bankrupt the remedy a court would impose would be damages against the developer rather than to unwind the subsequent transactions. However it is probably a pretty complex area. your solicitor ought to be able to sort out the policy, although in my opinion the developer ought to pay for it.

wacko2k

Thanks Radiantsoul, I too thought that any claims would be made against the developer.

Do you know where I can find any further information about this type of cover?

DVardysShadow

I think you need to find out more about the specific risk and how any claim might arise, before you look at insurance. If there is a risk, then the developer should cover it. It strikes me that your solicitor is being ultra cautious and generally, I would think that the amount at stake in a house sale is enough to ensure that the sellers are deemed to have looked after their own interests. It only seems to get difficult if there was some other connection between the developer and the original owners.