Below Market Value Question
I know that due diligence is needed when buying Below Market Value “BMV” when the vendor is in financial difficulty. My understanding is that if the vendor is subsequently made bankrupt the sale can be overturned buy official receivers. However, if the buyer was to re-sell the property for a profit? Is the person who buys the property at this point still at risk if the original vendor goes bust?
For example, let’s say a property is on the market which was purchased for £105k a few months ago but its market value is say £150k. The estate agent advised the vendor not to sell at such a low price and even made him sign a letter to say it was against their advice. The same property is now back on the market at £140K. If I was to buy this property would I be putting myself at risk if the original vendor declares bankruptcy?
Thanks
Sally
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Member Since January 2011 - Comments: 12196 - Articles: 1396
8:47 AM, 17th December 2013, About 12 years ago
That’s a great question Sally, I don’t know the answer!
A question you could ask your conveyancer though is whether the original purchaser purchased insurance to indemnify the risk and if not whether he/she is prepared to do so. If the answer to both questions are no then you have to wonder why as these policies are not particularly expensive and given that £30,000 profit is being made on this transaction it is only fair to insist upon it for your own protection.
I suppose the real issue here though is what if you are unaware of the previous BMV transaction?
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Member Since February 2011 - Comments: 3453 - Articles: 286
10:32 AM, 17th December 2013, About 12 years ago
Hi Sally,
If this is a real example it sounds like you have concerns so please tread carefully and get advice from your solicitor.
It sounds like there is the possibility that the original vendor is hiding his assets from his debtors which is a dangerous situation for you to get involved in especially as you know.
There are plenty of other fish in the sea, so if in doubt just walk.
Member Since June 2013 - Comments: 83 - Articles: 1
11:55 AM, 17th December 2013, About 12 years ago
I think If I was about to make 30k profit I would be volunteering to pay for the indemnity policy!
Good Luck but if you decide not to proceed do let me know LOL
Member Since July 2013 - Comments: 1264 - Articles: 1
4:02 PM, 17th December 2013, About 12 years ago
I would steer well clear. I can’t say you would definitely be called upon for the difference (presumably the interim owner would also be) but it is a risk. The receiver can still come after property if it was disposed of for BMV and it may not always be time limited. For the 10K profit, you would be mad. Invest in a property with a less dodgy history!
Member Since July 2013 - Comments: 36 - Articles: 1
2:26 PM, 18th December 2013, About 12 years ago
Thanks everyone. I have sent an email to my solicitor and will let you know what she says.