Buying a Repossessed house

Alarae

I'm one of those people in the background making the decisions on marketing repossessed properties.

For my Clients (banks), I am given a set mandate in which I can accept suitable offers. Our exchange deadline is shorter than what most people advise on this forum (less than the 28 days often quoted) but can be extended based on suitable sales progress. If there are delays, we withdraw contracts on the sale with a view to reinstate once someone is ready to exchange.
Cash offers are expected to exchange in less time than a mortgage.

In terms of position, there are various factors which are taken into account when accepting offers. Two matching offers, one cash one mortgage, the asset manager will likely go with the cash offer. Less hassle, likely to complete quicker. If the mortgage offer is higher, they will go with that. While the banks have a duty to reduce he borrowers debt it is not necessarily going with the highest sale price. For example if a property has been taking a long time to get close to exchange (difficult leases, title issues etc) then they may opt to reject higher offers in favour of sticking with the current sale. This is seen quite a lot in shared ownership repossessions.

With sealed bids, it doesn't stop the property from being marketed following the result. The asset manager doesn't even have to accept the highest offer following this, especially if they have doubts about the top offer (for instance a mortgage offering largely in excess of purchase price with no proof they can cover the shortfall). Sealed bids prevents all losing bidders from submitting further offers on the property, but doesn't stop any new bidders from coming in.

I wish you good luck getting the property! I have seen sales fall through on the day of exchange due to higher offers on repos and I take my hat off to anyone who has the nerve to potentially lose all the money they have spent on legals!

jonathanrolande

The owner ie the bank will decide based on all facts. They are duty bound to get the best price/best buyer combination.

eddddy

Alarae wrote: »

Sealed bids prevents all losing bidders from submitting further offers on the property, but doesn't stop any new bidders from coming in.

Really??

So from a buyer's perspective, you're saying it's better not to submit a sealed bid at all...

...Just wait until the winning sealed bid is announced, and then decide if you want to bid a bit higher.

(I would have said that a sealed bid process isn't appropriate for repossessions at all.)

Alarae

It is very rare we opt to do it, but I have done it on a couple of occasions (largely due to bidding wars between two individuals increasing £1000 at a time lasting two months). Whether or not you could bid again should you not opt to submit a sealed bid is a grey area; it hasn't happened in my experience.

I would assume however that your failure to submit a sealed bid would be you stating your last offer was your final offer and essentially your sealed bid as all parties involed would be issued a letter requesting final bids by a certain time and that all bids are final.

If someone was issued the sealed bids letter and failed to bid after the fact I would tell them they wouldn't be allowed as they were bound by the sealed bids terms. If you had never offered on the property before and came in after then I would allow it.

eddddy

Alarae wrote: »

... I would tell them they wouldn't be allowed as they were bound by the sealed bids terms.

What legal authority/precedent do you have to disallow higher bids for a repossessed property?

Has your approach been tested by the courts?

Parliament's view seems to be:

6.1 On default of mortgage repayments and by court order, the lender can repossess the property. After the lender takes the property into possession they have a legal duty to sell the property for the best price that can reasonably be obtained.

link: http://researchbriefings.files.parliament.uk/documents/SN04837/SN04837.pdf

Disallowing higher bids doesn't seem to be compatible with "selling the property for the best price that can reasonably be obtained".

davidmcn

eddddy wrote: »

What legal authority/precedent do you have to disallow higher bids for a repossessed property?

Has your approach been tested by the courts?

Disallowing higher bids doesn't seem to be compatible with "selling the property for the best price that can reasonably be obtained".

In Scotland (where the responsibility to take reasonable steps to get the best price isn't much different) the normal approach is only to open up to other offers once negotiations have broken down with the preferred bidder (i.e. just what we would do in a "normal" sale). I suppose the argument is that it can lead to higher offers, if everyone knows that they really are only getting one shot at it. Not aware of any borrowers challenging it in court.

Alarae

The key is 'reasonably obtained'. The fact is upon sealed bids they are invited to make their best and final offer. The key is to reduce the borrower's debt as much as possible. This includes selling the property as quickly as possible in order to minimise interest. This is why sealed bids are rarely used in repossessions, but they are a tool to end bidding wars and get the sale underway.

It is a balancing act. The aim of asset managers is to mitigate the effects of the repossession on the borrower. Where possible, we aim to get the best price but the fact is sometimes it is best practice to accept, or stick, with a lower offer that is close to exchange as any further interest accrued on the mortgage account is minimal.

In the two sealed bids scenarios I have conducted, the under bidder offered the maximum they could for the property, per their financial situation. There was no provision for them to increase again and they understood this when submitting their maximum. If I ever come across an under bidder attempting to submit a further offer I shall let you know how it is handled!

I have on multiple occasions declined higher offers on properties with my Client's approval after submitting a justification. Each case is dealt with differently depending on the circumstances, there is no set way to market a property. It isn't a simple case of accepting the highest offer as there are other factors in play.

99markus

Think it's pointless now, got a phone call saying someone's come in wth £80000 which is £4000 more then my offer which I won't go higher. Last I heard they said there was no more bids as of Friday so a bit annoyed. Friends keep telling me it's to push me and the other bidder higher I don't know how true this is