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Buying from a Mortgagee – it has its advantages

February 17, 2014

An Association may find itself buying a property from a mortgagee exercising its power of sale.  This might be because a mortgagee wants to surrender a shared ownership lease rather than staircasing or is exercising a power of sale over a property surrounded by other properties owned by the Association. 

The involvement of a mortgagee does not make a great deal of difference to the conveyancing process.  The mortgagee will want to complete the sale as quickly as possible.  It will not want to negotiate documents and will not provide extensive replies to enquiries.  Accordingly, the transaction is likely to move much more swiftly than a standard residential purchase. 

There are a few points which are worth noting:

The mortgagee will not give much information and will exclude itself from any liability in respect of ownership of fixtures and fittings.  This means that the purchaser needs to be careful not to dispose of any items left at the property which may still be owned by third parties under rental agreements etc.  It may be prudent to store any such items before disposing of them.

  • Special provisions will be inserted to assist the mortgagee in defending any subsequent claims that the property may have been sold at less than its proper market value.  This may include provisions permitting entry to the property within a certain period of time following completion in order to carry out further valuations.  There may also be a requirement that the mortgagee must be notified of any subsequent sale within a limited period (e.g. six months) so that it is made aware of any uplift in the price. 
  • The mortgagee will not need to provide a discharge of its charge registered on the title.  Instead, a special type of Transfer will be used (Land Registry form TR2) which will automatically release the charge when the Transfer is completed.
  • A mortgagee is not exempt from the requirement to provide an EPC.  This will still be required by the purchase as it can re-let or sell the property. 
  • An Association will need to check that there is no underlying Section 106 Agreement which may restrict its proposed use of the property.  Some Section 106 Agreements contain wording which will reactivate the affordable use requirements of property where they fall back into the ownership of a registered provider.

Despite the few differences and points to note mentioned above, transactions with mortgagees do usually proceed smoothly and are more straightforward than standard purchases.