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

lb00

silvercar said:

Hypothetical scenario: If the previous owner goes bankrupt, the trustee might see the sale of the flat at £510k followed by my purchase at £620k a few months later. The trustee could argue that the flat was sold at an undervalue and file a claim to recover the difference. A judge might take the same view, questioning why the flat was sold for £510k when it could have been sold on the open market for £620k.

Please help me understand where I might be mistaken. Even if the seller bought three flats at once and my flat had a tenant in situ, I don't believe that justifies a 20% discount (£110k).

The trustee would see the sale of the flat as part of the sale of 3 flats. The trustee may argue the flat was undervalue, but he would need to look at the 3 combined purchase price. Even if he thought the onward sale to you was undervalue, his claim would be against any assets the bankrupt has. If the bankrupt has no assets, unlikely given he’s just sold a portfolio, there would be 3 flats minimum to look at, not just yours, To file a claim against an unconnected party would be very rare.

There are a lot of ifs in your mind - if the seller goes bankrupt, if the seller has no assets, if the trustee looks at your purchase in isolation, if the trustee doesn’t find any assets elsewhere, if the trustee decided to look at unconnected parties…..

Thank you. In my place, would you then just go ahead without the indemnity policy? I'd be ignoring my solicitor's advice, but to be fair, he has tended to err too much on the side of caution in several other matters as well.

silvercar

lb00 said:

silvercar said:

Hypothetical scenario: If the previous owner goes bankrupt, the trustee might see the sale of the flat at £510k followed by my purchase at £620k a few months later. The trustee could argue that the flat was sold at an undervalue and file a claim to recover the difference. A judge might take the same view, questioning why the flat was sold for £510k when it could have been sold on the open market for £620k.

Please help me understand where I might be mistaken. Even if the seller bought three flats at once and my flat had a tenant in situ, I don't believe that justifies a 20% discount (£110k).

The trustee would see the sale of the flat as part of the sale of 3 flats. The trustee may argue the flat was undervalue, but he would need to look at the 3 combined purchase price. Even if he thought the onward sale to you was undervalue, his claim would be against any assets the bankrupt has. If the bankrupt has no assets, unlikely given he’s just sold a portfolio, there would be 3 flats minimum to look at, not just yours, To file a claim against an unconnected party would be very rare.

There are a lot of ifs in your mind - if the seller goes bankrupt, if the seller has no assets, if the trustee looks at your purchase in isolation, if the trustee doesn’t find any assets elsewhere, if the trustee decided to look at unconnected parties…..

Thank you. In my place, would you then just go ahead without the indemnity policy? I'd be ignoring my solicitor's advice, but to be fair, he has tended to err too much on the side of caution in several other matters as well.

I would. If you want some context, our sellers did go bankrupt a few weeks after we had bought. We were never contacted by anyone trying to evaluate whether we had paid market value or not.

lb00

silvercar said:

lb00 said:

silvercar said:

Hypothetical scenario: If the previous owner goes bankrupt, the trustee might see the sale of the flat at £510k followed by my purchase at £620k a few months later. The trustee could argue that the flat was sold at an undervalue and file a claim to recover the difference. A judge might take the same view, questioning why the flat was sold for £510k when it could have been sold on the open market for £620k.

Please help me understand where I might be mistaken. Even if the seller bought three flats at once and my flat had a tenant in situ, I don't believe that justifies a 20% discount (£110k).

The trustee would see the sale of the flat as part of the sale of 3 flats. The trustee may argue the flat was undervalue, but he would need to look at the 3 combined purchase price. Even if he thought the onward sale to you was undervalue, his claim would be against any assets the bankrupt has. If the bankrupt has no assets, unlikely given he’s just sold a portfolio, there would be 3 flats minimum to look at, not just yours, To file a claim against an unconnected party would be very rare.

There are a lot of ifs in your mind - if the seller goes bankrupt, if the seller has no assets, if the trustee looks at your purchase in isolation, if the trustee doesn’t find any assets elsewhere, if the trustee decided to look at unconnected parties…..

Thank you. In my place, would you then just go ahead without the indemnity policy? I'd be ignoring my solicitor's advice, but to be fair, he has tended to err too much on the side of caution in several other matters as well.

I would. If you want some context, our sellers did go bankrupt a few weeks after we had bought. We were never contacted by anyone trying to evaluate whether we had paid market value or not.

Thank you silvercar.

If you don't mind me asking, was the flat you purchased sold at a significantly lower price than market value just a few months prior to your purchase? Or was it sold below market value to you?

Also if the previous owner goes bankrupt, the challengeable period for the sale by unconnected parties is only two years, correct?

If I decide to proceed without purchasing the policy, is there any other way to mitigate this risk? For example, could I ask the seller to declare that the transaction was at arm's length and that they are not connected to the previous owner?

Thank you very much for your help.