Auction disaster advice

soolin

There are some excellent points above but as a general comment I would add the following.

I have attended a property auction as I knew someone who did this professionally, buying up properties and renovating them, it’s an absolute minefield if you go in blind.  (I have never bid nor do I have the intention to ever do so, I merely went as an observer with a friend). I don’t recall the auction house but they could not have been clearer with their warnings on paperwork and online on their website that there were high costs involved and that it was essential that buyers had read and understood the buyers pack beforehand.

i recall a huge deposit had to be made at point of purchase or within a short time frame, this was a while ago and my colleague  used some form of pre authorised bank cheque, later they used a pre authorised bank transfer. Ownership was immediate.

Some buyer packs mentioned important clauses that would affect development , grade 2 listing etc, some covenants about retaining certain aspects or using a certain material for repairs. My colleague visited all the properties, some were uninhabitable , some had no floorboards and he wasn’t allowed inside to view merely standing on the doorstep with a hard hat. He tended never to get involved with sitting tenants in any form though as he needed a quick churn. 

OP, assuming you come back to the thread, have you seen the buyers pack , have you paid anything yet and has anyone visited the property . Also, and I know it’s a bit late now, have a good look at the auctioneers website about costs and anything that mentions penalties if you pull out. Assuming you have a solicitor for the purchase, ask them for advice as well. 

Finally, the property was yours from the moment the gavel fell, so make sure you have it insured , especially if there is the possibility there may be a tenant involved somewhere. 

Catonthemoon

Is this property in the UK? I’d be interested to know where you can get a property (habitable), for £55k these days!
Regarding the rent, which, no doubt, you will clarify… achieving that level of rental income (£750 pm) from a property valued @ circa £55k is a hell of a return - it doesn’t seem to stack up!!

eddddy

JackJacobs said:

Trying to prove there was never a tenant there?

FWIW, if you mean "prove that no tenant was living in the property" that's probably not sufficient proof of anything.

You say there's a tenancy agreement - so that means there's a tenant. It doesn't matter whether they live in the property.

For example, I could rent a house (i.e. become a tenant), but never live in the house.



If anything, you need to prove that the information you were given is misleading. (i.e. there was misrepresentation by the seller.) 

eddddy

Catonthemoon said:

Regarding the rent, which, no doubt, you will clarify… achieving that level of rental income (£750 pm) from a property valued @ circa £55k is a hell of a return - it doesn’t seem to stack up!!

Yes - that's part of the scam that I described (but that part is not relevant to the OP)

• The auction listing says there is a tenant paying a rent of £750  (which attracts investors)

• But the tenant might be a 'mate' of the seller

• After buying the property, the buyer finds that the tenant/mate owes 6 or maybe 12 months rent - which the buyer has to pay to the seller

• When the buyer eventually manages to evict the tenant/mate - they find that the property can only achieve £400 per month in rent on the open market

(But just to emphasise - the OP hasn't yet confirmed that this is what's happened in their case.)

Devongardener

First thoroughly reread the pre auction information to confirm your liabilities as new owner.  If you intend to walk away what do the t&cs say about that?
Get a solicitor involved immediately and get documentary evidence of the tenancy and rent arrears.
Were you bidding as a buyer yourself so are now the new legal owner rather than your parents or son?
I’m sure your parents are very distressed about the situation, but you all have to take responsibility for lack of research, and as others have said the auctioneer would have stated that the property was tenanted before bidding started.

user1977

JackJacobs said:

Appears to be a very clever scam that foolish people like me fall into not reading the sales contract details.

Although the stress it has put my parents and myself through has been life changing.

You make it sound like it happened a while ago - have you still not sought any legal advice?

Not sure where the "scam" is, unless there's info you've left out - on the face of it, it sounds like a landlord selling their property in good faith.

Section62

eddddy said:

Section62 said:

What is the exact wording about interest in the agreement?  Seems improbable that an £8.1k interest charge could lawfully accrue over 6 months on total rent payments of £4.5k.

Is 6% the annual rate?

Smalltownhypocrite said:

with a daily late interest charge of 6%!!! 

now granted I'm no expert in banking jargon but isn't their a cap of 3%?

Which might put the OP in an even worse position.

The auction contract probably says that the OP has to pay the seller the rent arrears according what the tenancy agreement says - i.e. including 6% interest.

But when the OP tries to claim the rent arrears from the tenant - the tenant doesn't have to pay the 6% interest because it is unlawful to charge that to a tenant.
...

That was what I was thinking, the OP instantly becomes a 'bad landlord' and not only cannot claim the interest, there may be other issues with the tenancy agreement which make eviction even more difficult and expensive than expected.  Then perhaps not beyond possible that the costs and difficulty involved take such a chunk out of the property value that an offer by the vendor to buy the property back (for much less than the OP paid) becomes an attractive way out, after which the vendor could rinse and repeat.

However, I also wonder whether sufficient unlawfulness in the tenancy agreement might put the OP in a position where the contract with the auction house/vendor could be legally attacked.  The OP being liable to pay the vendor the interest they were never lawfully entitled to sounds as though it might be an unfair term.  Something to get professional legal advice on, with sight of all the documentation, rather than 'free' advice from an internet forum.  The hole could get deeper if not handled the right way.

soolin

user1977 said:

JackJacobs said:

Appears to be a very clever scam that foolish people like me fall into not reading the sales contract details.

Although the stress it has put my parents and myself through has been life changing.

You make it sound like it happened a while ago - have you still not sought any legal advice?

Not sure where the "scam" is, unless there's info you've left out - on the face of it, it sounds like a landlord selling their property in good faith.

I agree there is no scam here at all, nothing said seems different to anything I saw at property auctions - I always thought it sad though when a newbie entered an auction and bought a 'cheap' property that even the developers wouldn't touch. There were several pointed out to me by my colleague including a lovely little 'able to move straight in' flat above a shop - it had so many covenants and restrictions and all sorts of nasty expenses but all were mentioned in the property/buyers pack - went to someone who had scraped the money together for the bid price without any thought of all the extra costs, didn't even have a solicitor or turn up at auction with the monies to pay the down payment, that as far as we were ever made aware ended very badly. Most of us I assume have caught sight at least of all those programmes on the TV about buying houses at auction- there's even been some who buy expecting to be able to have a few months to arrange a mortgage.

It's the same at any auction, I've seen buyers bid and win large pieces of furniture - get shocked there is a buyers premium and have no way of shifting it from the auction house which required removal in 24 hours before a storage fee was charged. 

No scam though - I missed the bit about this being a purchase 'in the past' and wonder what exact stage the buyer is at now as that might change the advice. i suspect though we won't see the OP again, which is a shame as I'm sure there are some points that might be useful.

eddddy

Section62 said:

Then perhaps not beyond possible that the costs and difficulty involved take such a chunk out of the property value that an offer by the vendor to buy the property back (for much less than the OP paid) becomes an attractive way out, after which the vendor could rinse and repeat.

With auction properties, the way that is often achieved is...

The OP fails to complete. The seller puts the property back in the next auction. The OP has to cover the sellers losses (i.e. re-auction fees, additional legal fees, difference in selling price, etc)

e.g. If the property resells for £35k - the OP has to cover the £20k loss, plus fees.


(And assuming the seller sues the OP for the money - the OP is free to argue that there was misrepresentation, or whatever defence they choose.)

FreeBear

Catonthemoon said:

Is this property in the UK? I’d be interested to know where you can get a property (habitable), for £55k these days!
Regarding the rent, which, no doubt, you will clarify… achieving that level of rental income (£750 pm) from a property valued @ circa £55k is a hell of a return - it doesn’t seem to stack up!!

https://www.rightmove.co.uk/properties/162347189# - Sounds like a repossession..

https://www.rightmove.co.uk/properties/160828694# - Currently tenanted, but vendor hopes for vacant possession on completion.
Both of the above properties are in your £55K price bracket. Could possibly return £400-500 per month if rented.