Buying a repossession with a second charge…

boss7

Dear all
I have see a repossession for sale that I am interested in buying. 

I have viewed the legal pack and one thing that stood out on land registry was a second charge which I assume was for some additional lending not from the primary lender who is the one repossessing. 

Am I safe to assume the second charge will be cancelled on the new registry after sale?

The property is being sold at auction so limited time to take any professional advice and seller solicitor will not answer questions at this point.  

It is being sold with limited title guarantee which I believe is standard for repossessions. 

Any advice or experience very much appreciated. 

Tiglet2

Is this the 'modern method of auction' or 'traditional auction'.  Will you be 'exchanging' as soon as you win the auction?  If you do exchange as soon as you win the auction, you should instruct a solicitor asap in order that the due diligence can be completed before the auction takes places.  Otherwise you are committed to purchase without being able to raise enquiries about anything revealed in the legal pack, including the query about the second charge.  

Both charges will need to be redeemed out of the sale proceeds.  Will there be enough in the kitty to repay both loans?  That's something your solicitor will need to enquire about. 

The seller's solicitor will need to obtain redemption statements from both lenders and will need to send the outstanding amounts to them.  

Limited title guarantee is usually where the party selling the property, i.e. Executors of the Estate or the Lender knows very little about the property and a lot of the responses to enquiries or requests for paperwork will be 'not known' or 'none available'.

Is the second charge to another lender or a private individual/company?

SDLT_Geek

I would expect that if the sale is by a first mortgagee, the second mortgage would be “overrreached”.  That is, it could still be removed from the title on a sale, even if there is not enough money to pay it off.

If at a traditional auction you should get legal advice before bidding.

Best avoided altogether if for sale on a “modern method of auction”.

Land_Registry

See section 2.2 of our Practice Guide on the subject - it explains how other entries are dealt with on registration of a Form TR2 (transfer under power of sale) 
https://www.gov.uk/government/publications/transfer-under-a-chargees-power-of-sale

boss7

Land_Registry said:

See section 2.2 of our Practice Guide on the subject - it explains how other entries are dealt with on registration of a Form TR2 (transfer under power of sale) 
https://www.gov.uk/government/publications/transfer-under-a-chargees-power-of-sale

That is brilliant. Thank you. 
I have read this and from the below:

We will only cancel other entries if either:

• it is clear to us that the charge has priority to the interest which is the subject of the entry

I think then it is safe to assume the secondary charge will be cancelled?

The charges listed are numbered. 1/2 are to do with the freehold. 3 to do with adjoining properties. These are all generic I believe to all flats in block. 4/5 are the bank and 6/7 are the third party. Therefore the bank is in priority to the other lending. 

In reposnse to the other comments above, it is exchange on hammer. I have tried to seek legal advice and have gone to a specialist conveyancer who say they deal with this sort of sale. They did mention the 'overreaching' but they did not give much more detail. They also told me they haven't managed to spend much time on it given short deadlines. I went as far as to call the selling solicitor myself! They said it would not be appropriate to answer any of my questions and everything they have to say is in the legal pack. They did mention s 75 may answer my question in fairness...which I think is what the link above points to. 

SDLT_Geek

How about you post the charges register of the property, redacting any information which would identify the property or its owner?  It would be helpful though to leave in the dates of entries and of documents?

boss7

Sure, see below. I have redacted some info, but all key info is there, I have summarised the dates:

4 (1995) REGISTERED CHARGE dated XXXX 1995 to secure the

moneys including the further advances therein mentioned.

5 (2010) Proprietor: BANK NAME (Co. Regn. No. XXXX) of

ADDRESS, XXXXXXX.

6 (2019) REGISTERED CHARGE dated XXXX 2018.

7 (2019) Proprietor: THIRD PARTY ORGANISATION of

ADDRESS, XXXX.

Land_Registry

SDLT_Geek said:

How about you post the charges register of the property, redacting any information which would identify the property or its owner?  It would be helpful though to leave in the dates of entries and of documents?

Sound advice here as so many people refer to ‘charges’ but as the PG explains there are a variety of ways that interests are protected on the land register. 

You refer to a second charge and I assume from your later post re numbered entries, that it is a registered legal charge. So in essence the owner had two secured loans, the first to the now selling lender and a second with another lender. 

If so, and the second legal charge is dated and registered later than the first, then it should be cancelled as per our guidance. 

SDLT_Geek

boss7 said:

Sure, see below. I have redacted some info, but all key info is there, I have summarised the dates:

4 (1995) REGISTERED CHARGE dated XXXX 1995 to secure the

moneys including the further advances therein mentioned.

5 (2010) Proprietor: BANK NAME (Co. Regn. No. XXXX) of

ADDRESS, XXXXXXX.

6 (2019) REGISTERED CHARGE dated XXXX 2018.

7 (2019) Proprietor: THIRD PARTY ORGANISATION of

ADDRESS, XXXX.

You should get proper legal advice before you commit yourself to buy at the auction, but it seems to me that if a power of sale is exercised by the Bank with the 1995 registered charge, that will overreach the 2019 registered charge.

user1977

boss7 said:

In response to the other comments above, it is exchange on hammer. I have tried to seek legal advice and have gone to a specialist conveyancer who say they deal with this sort of sale. They did mention the 'overreaching' but they did not give much more detail. They also told me they haven't managed to spend much time on it given short deadlines.

But you are nevertheless going to get them to do a proper review before the auction, yes? There are, after all, 101 other possible problems, any of which might explain why the property is in an auction rather than being sold conventionally...

boss7

user1977 said:

boss7 said:

In response to the other comments above, it is exchange on hammer. I have tried to seek legal advice and have gone to a specialist conveyancer who say they deal with this sort of sale. They did mention the 'overreaching' but they did not give much more detail. They also told me they haven't managed to spend much time on it given short deadlines.

But you are nevertheless going to get them to do a proper review before the auction, yes? There are, after all, 101 other possible problems, any of which might explain why the property is in an auction rather than being sold conventionally...

I had hoped to, but it may not be possible as bids are in the next two days. 
I have contacted them to ask them to do so and waiting for reply. 

Can you give me an example of a couple of the biggest of the 101 issues!?
My view is that it is being auctioned due to it being inhabitable. It has some damp too. It is not mortgageable in its current state. 
No viewings are allowed for this property, but I have looked through the window. 

All sounds very risky, but I am already bdudgeting for  a full gut out and refurb. It is a small apartment for context. I guess auction sale is risky be definition and not for everyene. Maybe not for me either, we will find out!

I may be very naive about it, but aside from the LR issues, I am not too sure what else could be catastrophic and hiding away, which a conveyancer can tell me? Happy to receive some tips if you have them!