House previously bought at undervalue: can my transaction be voided?

ReadySteadyPop

DullGreyGuy said:

lb00 said:

user1977 said:

Broadly speaking, yes. Though only to the extent of the undervalue - what are the figures involved? (though bear in mind the inevitable risk if the parties were connected no matter what the price appeared to be, as the true consideration could have been something else).

You can insure against the risk. Your solicitor should be advising you on this.

propertyrental said:

What does your solicitor say?

Hoenir said:

Creditors also have rights under the Insolvency Act. Where assets have been deemed intentionally to be placed out of reach. No time limit applies. 

The price I am paying for the house is £620,000. The price my seller (B) paid was £510,000. I have to mention that I am buying the house vacated, but it was sold to the seller with a tenant in situ. 

When was the sale to B?

Are you aware of them having done anything to the property other than turfing the tenants out? Our last rental was marketed at £650,000 and sold for £510,000... the LL was in financial difficulty but still held out 12 months for a sale. Haven't seen it back on the market but the mirror flat (in better state of repair) is currently on the market for offers over £700,000 5 years later. 

Yes many people seem to hold out for too long in the hope of getting a certain price. My feeling here though is that the OP is overpaying.

DullGreyGuy

ReadySteadyPop said:

DullGreyGuy said:

lb00 said:

user1977 said:

Broadly speaking, yes. Though only to the extent of the undervalue - what are the figures involved? (though bear in mind the inevitable risk if the parties were connected no matter what the price appeared to be, as the true consideration could have been something else).

You can insure against the risk. Your solicitor should be advising you on this.

propertyrental said:

What does your solicitor say?

Hoenir said:

Creditors also have rights under the Insolvency Act. Where assets have been deemed intentionally to be placed out of reach. No time limit applies. 

The price I am paying for the house is £620,000. The price my seller (B) paid was £510,000. I have to mention that I am buying the house vacated, but it was sold to the seller with a tenant in situ. 

When was the sale to B?

Are you aware of them having done anything to the property other than turfing the tenants out? Our last rental was marketed at £650,000 and sold for £510,000... the LL was in financial difficulty but still held out 12 months for a sale. Haven't seen it back on the market but the mirror flat (in better state of repair) is currently on the market for offers over £700,000 5 years later. 

Yes many people seem to hold out for too long in the hope of getting a certain price. My feeling here though is that the OP is overpaying.

Covid happened during their sale which won't have helped but I think there is always a bit of challenge of how you price a doer upper. They were trying to sell on its potential rather than its current condition. 

We dont know the time gap between the last sale and now for the OP. Certainly in my personal experience someone could have bought it, changed it from an aged rental to a modern owner occupier property and easily added £100k in value but it'd been a lot of work and still the very high service charge would be damaging 

bobster2

lb00 said:

The price I am paying for the house is £620,000. The price my seller (B) paid was £510,000. I have to mention that I am buying the house vacated, but it was sold to the seller with a tenant in situ. I read that having a tenant in situ can reduce the price by about 20%.

Can you look up a previous price from years ago? And project forward to the present day - e.g. using Nationwide house price index.This might give you some clarity on whether £510,000 4 months ago undervalued the property - or whether £620,000 today is overvaluing the property.

silvercar

I’d ask on the bankruptcy board: https://forums.moneysavingexpert.com/categories/bankruptcy-living-with-it

lb00

user1977 said:

None, that's what the insurance covers.

Do you not know whether the previous sale was on the open market or not? Are you buying from one of the "we buy any house" type outfits?

I believe the property was not listed on the open market. From what I understand, the previous seller (A) was in financial difficulty and sold to the current seller (B) at a below-market price. The current seller is a property investor company specializing in asset repositioning, hence these kind of sales are their line of business.

I checked the Nationwide Price Index, which estimates the property's value at around £720k with the average UK index and £800k with the London index. However, another flat a few floors below sold for £600k a month ago, suggesting my price is around market value.

I'm inclined to proceed, get indemnity insurance, and ask the seller to pay for it. 

What do you think? How long does the insurance need to cover to ensure I'm safe?

saajan_12

lb00 said:

user1977 said:

Insurance would pay the creditors (or pay to challenge a claim). The creditors' claim would, as I said, only be for the extent of the undervalue, not the whole house.

How do you know the £510k was at undervalue? It might have been the market price, given as you say it had a tenant in place. Was it bought on the open market? How long ago?

If you don't fully understand your solicitor's advice - tell him! It's what you're paying for, he should be explaining it to you until you understand it...

Thank you so much. Given the situation, if I am insured, what risks am I effectively facing?

I believe the previous transaction is at undervalue because the sale happened just 4 months ago, and property prices haven't significantly increased since then. The only plausible explanation for the price difference might be the tenant in situ, but I'm not sure if that justifies such a large discrepancy.

It would obviously be a nightmare to lose the house even if I got the money back, as I also plan to do some light renovation to the bathrooms.

To be clear this means indemnity insurance, not standard buildings cover. This would be a specific policy that your solicitor would source, plus get some declarations from the seller and possibly the person that sold to them. 

The idea the previous transaction was at £100k undervalue, then effectively your seller was gifted part of the value (£100k) and bought the rest £500k. If their seller goes bankrupt, their creditors could argue they can't just give away £100k of their assets and will seek to recover that value. This could be done by reversing the gift and the subsequent sale to you.

So to avoid this risk, you could get insurance to indemnify you of the £100k obligation if there was ever a backruptcy event on the original seller. The insurer might want to run a credit check on that seller to know how to price the insurance. You and your seller then need to negotiate who covers the cost of the insurance policy. 

--

There's still the question whether it was at undervalue, or if that was the market value of a property in whatever condition, with a tenant in situ, and if £100k is a fair gain from the eviction, renovation and general market rise. 

lb00

saajan_12 said:

lb00 said:

user1977 said:

Insurance would pay the creditors (or pay to challenge a claim). The creditors' claim would, as I said, only be for the extent of the undervalue, not the whole house.

How do you know the £510k was at undervalue? It might have been the market price, given as you say it had a tenant in place. Was it bought on the open market? How long ago?

If you don't fully understand your solicitor's advice - tell him! It's what you're paying for, he should be explaining it to you until you understand it...

Thank you so much. Given the situation, if I am insured, what risks am I effectively facing?

I believe the previous transaction is at undervalue because the sale happened just 4 months ago, and property prices haven't significantly increased since then. The only plausible explanation for the price difference might be the tenant in situ, but I'm not sure if that justifies such a large discrepancy.

It would obviously be a nightmare to lose the house even if I got the money back, as I also plan to do some light renovation to the bathrooms.

To be clear this means indemnity insurance, not standard buildings cover. This would be a specific policy that your solicitor would source, plus get some declarations from the seller and possibly the person that sold to them. 

The idea the previous transaction was at £100k undervalue, then effectively your seller was gifted part of the value (£100k) and bought the rest £500k. If their seller goes bankrupt, their creditors could argue they can't just give away £100k of their assets and will seek to recover that value. This could be done by reversing the gift and the subsequent sale to you.

So to avoid this risk, you could get insurance to indemnify you of the £100k obligation if there was ever a backruptcy event on the original seller. The insurer might want to run a credit check on that seller to know how to price the insurance. You and your seller then need to negotiate who covers the cost of the insurance policy. 

--

There's still the question whether it was at undervalue, or if that was the market value of a property in whatever condition, with a tenant in situ, and if £100k is a fair gain from the eviction, renovation and general market rise. 

Hi everyone,

I wanted to update you all on my situation and seek some advice. Things have been moving forward with my property purchase, but I’ve hit a bit of a snag.

I’ve agreed to pay for an insurance policy myself, but the seller insists their transaction was not at an undervalue. Here are the details:

- I am buying the house for £620,000.

- The seller purchased it for £510,000.

- I am purchasing the house vacant, while the seller bought it with a tenant in situ.

- The seller, a property investment company, claims the sale wasn’t at undervalue because they bought this flat as part of a "wider portfolio purchase" (three flats in the same block).

However, the insurance company requires a statutory declaration and details on the nature of the transfer from the seller. Without this information, I cannot take out the policy.

My concern is that if I accept the seller’s view that the transaction wasn’t at undervalue, I might face problems in the future. A judge might take a different view and determine the sale was at undervalue and I would have to pay the extent of the undervalue.

What would be your advice in this situation?

Thank you in advance for your help!

user1977

Your solicitor is presumably advising on taking out this insurance policy (and is the one excited about it being at undervalue, even though it probably wasn't), so should be able to answer your queries?

lb00

user1977 said:

Your solicitor is presumably advising on taking out this insurance policy (and is the one excited about it being at undervalue, even though it probably wasn't), so should be able to answer your queries?

I've talked to him, and he believes the property was sold at an undervalue. The seller and their lawyers say it wasn't. I'm looking for some thoughts here to help me make up my mind and see if such a price difference can be justified, especially considering the previous 'undervalue sale' only happened four months ago. Properties were sold off the market and as mentioned above they bought with a tenant in situ whereas I am buying with vacant possession.

Thank you.

martindow

Would a RICS valuation be helpful here in determining whether the price with a tenant in situ was under value or not?  Could this be relied on to protect the OP from a possible future claim?