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February 2016

Question

I planned to buy an apartment I saw advertised by an estate agency as an investment for my pension. I noticed the apartment was withdrawn from that agency and subsequently appeared advertised on a property website as being part of an auction, late last year. I successfully bid for the apartment and, as required, I paid 10 per cent deposit and signed a contract to complete the sale there and then.

The seller is bank A through receiver B. When I approached my own bank C to obtain the mortgage, for which I was already approved, they advised that the title of the property was not in order as it is sold through a receiver and that no mortgage loan would therefore be available.

I am now in a serious position as I appear to have paid a deposit on a property for which no mortgage is available and therefore I cannot complete the purchase. It is causing me no end of stress and I wonder if you could suggest a solution. My solicitor has suggested Distressed Title Insurance Bond but I don’t know what this is and if it will be accepted by my bank. I am desperately seeking any solution – can you advise?

Answer

When a property is selling by auction any interested purchaser can see a copy of the contract before the auction so that he can talk to his bank about loan approval, have a survey completed and request his solicitor to review the contract and title and make enquiries pre auction. If you buy at auction, as you did in this case, you immediately enter into a binding contract.

Auctions are a popular way for a bank to sell repossessed properties. When property is being sold by receivers on behalf of a bank, neither the bank nor the receiver will have all the knowledge relating to the property that an owner has.

The bank and receiver attempt to limit their liability under the contract and will insert conditions restricting the purchaser’s rights to enquire about matters such as planning, property disputes with adjoining landowners, services to the property and whether any notices have been served on the owner.

You are now in the difficult position of being bound into a contract and unable to finance its purchase. Assuming it is not possible to re-negotiate the terms of the contract, you should ask your solicitor to enquire with your bank as to which conditions in the contract are causing difficulty. It may be possible to deal with some issues yourself, eg a planning issue where you could instruct your own architect .

I note your solicitor has discussed title insurance with you. Defective title insurance, as the name implies, is insurance taken out to cover you and the bank against any defect in the title to your property that may arise at some point in the future. You need to advise the insurance company of the nature of the defect that you wish to insure against.

Defects could be a potential claim by a third party against the property or a document of title that is missing. Defective title insurance does not cover all problems with title, eg defects in planning permission. Ask your solicitor to speak to the insurance company to confirm the level and type of cover you could get, and then approach your bank again.

Anne O’Sullivan is a conveyancing solicitor with Solicitors, rennick.ie