Will it effect our house purchase if the house was previously sold undervalue?

Waller97

We are first time buyers in the conveyancing process of buying a no chain home. There were a couple of red flags with the seller of the property and how he came to obtain the property but we made the decision to move forward and get more information on this.

Our understanding as presented by the EA was that the seller bought the home in a cash purchase from his uncle as his uncle needed money for care purposes. He then put the house back up for sale the same week he completed to make some £££. (We flagged this to our solicitor so they are aware of all the details). It later emerged that the seller is part of a property development company although EA still adamant that the story of buying off his uncle is correct.

our solicitor has sent enquiries and has asked for a declaration from the seller explaining
a) why he is selling so quickly after buying 
b) whether he bought the home at an undervalue 
c) whether transaction was at arms length.

(I’m assuming the implication is he may have taken advantage of a vulnerable person to get the house cheap)

Can this in any way impact our house purchase? If there were any legality issues then I wouldn’t be upset to lose the house but I’d like to be prepared and our solicitors aren’t great with communication so thought I would see if anyone else has any experience like this?

TIA

user1977

How long ago did they buy? If less than six months then that's typically an issue for mortgage lenders.

eddddy

There's a couple of reasons that the solicitor might be making checks on an 'undervalue' sale.

The uncle might have been insolvent, so he sold the house cheaply to his nephew to avoid the money going to his creditors.

For example,

• If the uncle owed £300k in debts, and had a house worth £200k - the house would normally be sold for £200k, and the £200k distributed to creditors 

• But instead, the uncle sneakily sells it to the nephew for £50k - so there's only £50k to distribute to creditors

If that's happened, the sale to the nephew could be voided. Which would mean the sale to you would be voided.



Or, there may have been deprivation of assets.

• The uncle's care home fees might be £20k per year. The council would expect the uncle to sell his £200k house to cover those costs

• But the uncle sneakily sells it to the nephew for £50k - so the council end-up having to pay the uncle's care costs

But in that case, I think the nephew might become responsible for the care costs - so it might not affect the sale to you.

Waller97

user1977 said:

How long ago did they buy? If less than six months then that's typically an issue for mortgage lenders.

Yes I was worried about this but mortgage lenders are aware and are proceeding with application so I would assume they aren’t bothered by this?

Waller97

eddddy said:

There's a couple of reasons that the solicitor might be making checks on an 'undervalue' sale.

The uncle might have been insolvent, so he sold the house cheaply to his nephew to avoid the money going to his creditors.

For example,

• If the uncle owed £300k in debts, and had a house worth £200k - the house would normally be sold for £200k, and the £200k distributed to creditors 

• But instead, the uncle sneakily sells it to the nephew for £50k - so there's only £50k to distribute to creditors

If that's happened, the sale to the nephew could be voided. Which would mean the sale to you would be voided.



Or, there may have been deprivation of assets.

• The uncle's care home fees might be £20k per year. The council would expect the uncle to sell his £200k house to cover those costs

• But the uncle sneakily sells it to the nephew for £50k - so the council end-up having to pay the uncle's care costs

But in that case, I think the nephew might become responsible for the care costs - so it might not affect the sale to you.

Thank you, I appreciate the response. This makes a lot of sense and is what I am most concerned about so we shall see what the enquiries come back with. 

Thrugelmir

Waller97 said:

user1977 said:

How long ago did they buy? If less than six months then that's typically an issue for mortgage lenders.

Yes I was worried about this but mortgage lenders are aware and are proceeding with application so I would assume they aren’t bothered by this?

Your solicitor also works for the lender. The lender will base their decision on the information provided. You are paying their legal costs. Hence the lack of concern. 

user1977

Waller97 said:

user1977 said:

How long ago did they buy? If less than six months then that's typically an issue for mortgage lenders.

Yes I was worried about this but mortgage lenders are aware and are proceeding with application so I would assume they aren’t bothered by this?

So when was it?

Ath_Wat

Even if the story is true, I would be wary about dealing with anyone willing to do anything like that in the first place.  Proceed with caution and expect him to demand a few thousand more just before exchange.

Waller97

user1977 said:

Waller97 said:

user1977 said:

How long ago did they buy? If less than six months then that's typically an issue for mortgage lenders.

Yes I was worried about this but mortgage lenders are aware and are proceeding with application so I would assume they aren’t bothered by this?

So when was it?

The seller completed on the house in March and we had our offer accepted in April. 

gingercordial

Could there be a risk that the nephew had power of attorney over the uncle (if the uncle is in care), and has abused that power to put through the sale to himself to the uncle's detriment?  So similar to eddddy's first example but done to benefit the nephew not the uncle.  Likewise I would think if so there's a danger the first sale could be voided, and hence the second sale could not happen.

user1977

gingercordial said:

Could there be a risk that the nephew had power of attorney over the uncle (if the uncle is in care), and has abused that power to put through the sale to himself to the uncle's detriment?  So similar to eddddy's first example but done to benefit the nephew not the uncle.  Likewise I would think if so there's a danger the first sale could be voided, and hence the second sale could not happen.

It would be a valid claim against the nephew, but I don't think that gives anybody the right to unravel a transaction with a third party (acting in good faith), otherwise lots of transactions would never get done.