Buying And Selling Distressed Properties - Some Practical And Legal Challenges

The Irish property market is likely to be dominated by sellers of distressed properties over the coming years. The residential market has seen high-profile sales by secured lenders and while commercial property has not seen a revival in activity on the same scale – due in part to the lack of credit and to continuing valuation uncertainties – banks and insolvency practitioners will be in the vanguard of this market over the coming years.

The practical challenges

Any party approaching a property transaction with a bank, receiver or liquidator in an enforcement situation should appreciate from the outset that the opportunity to acquire a property in those circumstances comes at a price – the levels of information and legal comfort available from the seller in relation to the underlying asset are limited. The reasons for this are understandable:

The seller is unlikely to have all of the requisite knowledge of the property, and in many cases the seller will be relying on information that was gathered when security was originally taken. While a seller may have some opportunity to gather information in relation to a property, this exercise often relies heavily on the co-operation of the borrower. Sellers of distressed properties will never wish to accept any liability for information provided in the course of the sale, as the entire purpose of the sale is to realise value for the asset that can be used in reduction of debt or discharge of creditors. If the seller needs to put any of the realised funds to one side to deal with potential warranty claims the utility of the entire exercise is compromised. The absence of information concerning a property can be particularly marked in the case of fixed asset receiverships. Traditionally a "receiver and manager" would have full access to the books and records of the company concerned, and might well be able to garner a lot of information from those sources which might be of use to a prospective purchaser. Fixed asset receivers, however, rarely have access to the entire of the relevant borrower's records relating to a particular property, particularly when one is dealing with an individual over whose assets a receiver has been appointed. A recurring feature in the current property cycle is the difficulty which banks and receivers and liquidators encounter in gathering information from professionals that may have advised the borrower in relation to particular properties. Professionals such as architects...