Beware distressed sales, warns Affirmative

Beware distressed sales, warns Affirmative




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A warning has been issued of the dangers posed by the growing market in distressed property sales by leading UK Bridger Affirmative.

Eugene Esterkin, managing director of Affirmative, says buyers often borrow monies from lenders at high Loan To Values, with large portfolios of such properties growing up over recent years.

However, he warned: “Beware the purchase at an under value. There are genuine cases of distressed sales and sometimes there are real and even credible sales to prospective borrowers at seemingly give-away prices.

“But the reality is that they are few and far between. When someone is getting something for nothing that - in terms of true LTV - is usually what they are landing on the doorstep of the unwitting lender, who should be more worldly wise than to accept it as security.

“This has become a feature of the property finance market, and the lender should be wary of such prospective transactions for a variety of reasons.”

He said the issue of the Insolvency legislation will snap back and bite a buyer-borrower if the sale to the buyer-borrower is not wholly arm’s length which could embroil the lender in weeks or months of expensive litigation.


Esterkin said the issue of the real LTV is concerning to the lender if the sale is truly at arm’s length - if the valuer has got it right then there is no problem. However, valuers are not always right and occasionally are susceptible to influence by buyer-borrowers who want to borrow at high LTVs.

Esterkin added: “Thirdly, the main issue with such transactions – if a seller is truly distressed and wishes to sell fast - why can’t he go to his local estate agent and get the property marketed for a “quick sale” at a price which is mouth wateringly cheap to his local buyers?

“Speed - or an order for possession - is usually the answer, and the quick purchaser will drag along with him a quick finance deal, which the lender often ends up funding at equal haste.

“Also, these properties are often bought on ‘sale and lease back’ terms. The lender must get the usual protection against occupiers by way of a Consent to Mortgage.

“This type of deal is fraught with danger. Quick deals by their nature need not be dangerous if the proper investigation and underwriting procedures are adhered to by the lender.”

Affirmative is a market leading lender in the UK bridging market and has an in-house legal team. The underwriters explain the process from beginning to end and ensure that completion deadlines are met.

 

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