What to consider when applying for a mortgage for buying distressed properties?

Pre-contractual considerations and solutions

In recent years, many buyers have turned to distressed properties due to the significant discounts offered by banks. However, when applying for a mortgage to purchase a distressed property, there are certain considerations to keep in mind in order to avoid future issues.

Firstly, buyers should have a good understanding of the property's condition, including whether there are any unauthorized constructions, alterations, or structural modifications. Many banks now allow prospective buyers to commission a lawyer to review the property's deeds and documents before signing the contract. Buyers can also check the records of the unit in the Land Registry for any encumbrances such as court orders.

Secondly, once the contract is signed, buyers are deemed to have accepted the ownership and building conditions of the property. Therefore, buyers should pay attention to any pre-contractual issues such as outstanding management fees or utility bills, which could lead to court orders against the property, as well as structural problems such as illegal constructions or alterations. Buyers will need to bear the cost of resolving these issues and cancelling any encumbrances. Any disputes regarding the property's ownership or condition discovered after signing the contract will not be recognized.

Additionally, buyers should be aware that distressed properties cannot be resold, and the bank will not be responsible for clearing any furniture or debris left behind. Buyers should also consider any ownership defects, haunted or unregistered properties, and building code violations, as these could affect the mortgage approval process.

Finally, if buyers discover any issues with the property, they should first check whether the bank is willing to accept the condition and whether a solution can be found. Therefore, before applying for a mortgage to buy a distressed property, buyers should carefully read all relevant documents and contract terms to understand the rights and responsibilities of all parties, in order to avoid unnecessary disputes in the future.

In summary, when applying for a mortgage to buy a distressed property, buyers need to pay attention to the property's condition, pre-contractual considerations, and solutions. Before committing to a purchase, buyers should thoroughly investigate the property's condition and potential issues to avoid unnecessary risks and losses.