Hi guys, Looking for someone with a finance/legal background to explain the legalities and liabilities of encumbrance to me when relating to repossessed property I haven't bought repossessed property before and am a little in the dark as to the liabilities of the person buying the property. (I just want a basic understanding, will then take proper legal advice on a property I might consider buying). Lets call this Property A: Encumbrance amounts: Mortgage CBA: $700,000 Caveat X: Relates to Warrant Caveat Y: $300,000 Rates owing to council: $6,000 Let's say Property A has a curbside valuation of $1,400,000 Basically, what are the liabilities of the person buying the property at the auction? Is it up to the purchaser to settle the mortgage on the property as well as all caveats (I know they are responsible for the the outstanding rates). I.e in this case, $700k + $300k + $6k + Warrant Amount = $1,006,000 + Warrant amount. (Equity of $394,000 - Warrant Amount) I.E (Lets assume the warrant amount is $100k), so bidding would be from $0-$294k (Lets assume there's no sherrif reserve on the property) Is this correct? Or is it a normal auction up to the property value ($1.4m) and then the amounts are taken out of the settlement total and distributed to those owed moneys? Also how do you calculate outstanding warrant amounts that aren't listed on the encumbrance, is this purely just to the risk of the purchaser? Further explanation from someone who has done it would be great!
A mortgagee in possession property will usually come with a contract that has a lot of conditions. The conditions all pretty much say you are buying as is, where is. There can be adjustments for outstanding rates/water etc at settlement but once settled it is all your problem. Vital you get a decent suite of searches done. The mortgagee is offloading the property - if they agree to sell at a price then they will sell even if they get less than the mortgage owed. They must deliver a title free of encumbrances (except easements etc) on settlement.
MIP auctions in the price range are rarely a bargain during current economic times - just sayin ta rolf
And the ATO can also be a party. Not uncommon that the ATO after sale issues a garnishee / retention demand for a specific sum or all unencumbered proceeds to be held and given to them. This doesnt change contract price etc. It just reduces proceeds given to vendor like any other settlement adjustments such as arrears of land tax, rates etc Sometimes the agent will have already worked hard to get the auction approved. If bank doesnt agree to sale reserve it will pass in. That price ensures lender approves final sale minimum.
