Property might be unmortgageable - what happens now?

[Welcometomyhouse]

Evening.. I was going to post this in the property section but thought there would be more traffic here. Just wondering if anyone has been through a similar situation and what was the outcome?

I’m a first time buyer purchasing a first floor flat on my own. The lady who is selling the property inherited it from her mother who lived there for 20 years. There is a mix of houses and flats on the street, however only my downstairs neighbour and I are leasehold, whilst all the other properties (including the flats) are freehold. When I went to view the property I asked the EA if there were any services charges and they explained that the management/maintenance company no longer existed. In the 20 years that the woman lived there she never had to pay any service charge nor did anyone request any payment from her. The daughter has tried to contact the company multiples times but has not been able to get in touch with anyone, so she believes that it has dissolved. I believe this to be true as all the communal areas are overflowing with weeds etc and it is clear that no one has maintained it for some time now. The gardens are kept tidy, grass cut etc but that’s because the neighbours do it themselves.

All searches have come back and I’ve had my report but my solicitor is still awaiting a response from the other side in regards to this issue. The vendors solicitor didn’t send sufficient documentation in regards to this other than “the sellers mother hasn’t paid any service charges for 20 years and we believe the company has now dissolved”. They’ve told us that they will have an indemnity policy put in the contract to protect me incase someone tries to come after me in the future and demand payment. My solicitor isn’t happy with this and has said she doesn’t think the mortgage lender will be either. I don’t understand all this legal talk but I went into her office today and she gave me a few examples which helped me understand the severity of it.

1.	The management company own the outside of the property and are suppose to insure it. Because the company no longer exists the building is currently uninsured and if both flats went up in flames/flooded etc we’d be screwed. 

2.	The management company are responsible for dealing with any repairs etc. We are suppose to pay a monthly service charge to them and in return they deal with any repairs. Because they no longer exist there is no agreement in place which explains who is responsible for what and who pays for what. I’m on the first floor and if a slate fell off my roof and there was water gushing through my ceiling, technically both my neighbour and I would be responsible for paying for the repairs but they could just tell me to piss off and there’s nothing that I could do about it. If the management company was still active it would be their responsibility to enforce that they pay half the bill. The same could apply if they came to me with an issue, I could just tell them to get lost. 

3.	Similar to the above issue. If my downstairs neighbour was playing loud music until 1am, the only thing I could do is go down there and ask them to stop. Again, If the management company existed it would be their responsibility to enforce this. 

4.	If nobody has paid any services charges for over 20 years, then there might not have been any repairs done on the building in quite some time.

Whilst waiting for the other side to come back, my solicitor suggested that I knock the neighbours door to see if I could find out any more information but the lady downstairs wasn’t in today. I’ve left a note with my phone number on asking her to give me a ring to have a quick chat. My solicitor is doing everything that she can but has been honest with me and said that the property might be unmortgageable unless the vendors solicitor can provide sufficient documentation, however I’m not confident that she’ll be able to if the company no longer exists… it will then be up to the lender to make the final decision. It is out of our control now.

Apologies for the very long winded post. My anxiety is through the roof at the minute and it’s awful being told this after 9 weeks of waiting around. Surely things like this happen all the time and there must be a way around it?

Also just to ask (apologies if this has already been asked) if no one knows the management company - how do you know how longs left on the leasehold title?

If you buy now, in 5 years the management company turn up and say there’s less than ten years left for eg (not all leaseholds were automatically set up as 99 years if you go back 20 plus years) it could very realistically either cost you thousands to extend or effectively leave you trying to sell a worthless property.

I know personally that it’s heartbreaking to walk away from a property purchase but unless the sellers side pull their finger out, I’d not be happy with an indemnity policy on this one. I say that after 15 years dealing with this type of an issue.

Good luck!!

Sorry OP. If you were a cash buyer who wants to live there forever you could get it cheap and hope to be lucky that it won't fall down or that all future neighbours will stump up for any repairs needed (they won't). But as you presumably need a mortgage if its unmortgageable then you don't have that risk to take. The indemnity won't repair the flat.

All of the issues are solvable, it will just depend on how much effort and money you have to solve them.

Lack of insurance - yes, the block will need to be insured, but from the day of exchange, you are responsible for insuring it. Often (usually?) in leasehold flats, buildings insurance is part of the service charge, but you can buy a policy yourself for a couple of hundred £.

Lack of maintenance - I’m listening to the rain lashing down on my 100 year old roof and calling bullshit on them only lasting 25 years as a PP stated - but it is likely that if the building has been left alone for a long time, it will need work. So how much would the worst case scenario cost? Eg a new roof, new gutters, repointing the bricks etc etc. You should only have to pay for half of it, given you have a downstairs neighbour, but assume you’d need to cover the entire cost and work out if you could.

You can extend the lease or even buy the freehold from an absentee leaseholder - it’s more complicated and you will need to apply to the court, so again, expensive - but will uplift the value of your flat, so might be worth it.

How long is left on the lease?

I think the most likely explanation if all the other flats are freehold, is that it wasn’t financially beneficial for the freeholder to manage the 2 remaining ones, so they stepped away and left them to it.

If I were you, I would have a long think about whether you are willing to take on the challenges, and have the money to do it (or can negotiate a hefty enough discount). Walking away may well be the most sensible option, but it doesn’t have to be your only one (assuming the mortgage company don’t have an issue). Good luck!

@Isanyholeagoal

I would run a mile from this, it’s going to cause you so much trouble down the line

Yep. Sorry OP .

Absentee freeholder that should be. Sorry

My bil was on an estate where the residents formed the management company. For various reasons properties on the estate weren't selling selling and many were currently empty. The residents management was the responsibility of those on the estate to run. He was one of the few willing to actually do the necessary work to maintain the estate properly. When he sold up (and this wasn't easy and he lost money) he had to transfer his name off the residents management to be legally free of these responsibilities. To do this he had to get some one else living there to take over which proved something of a nightmare.

If the legal names are people who just can't be arsed you are stuffed.

This sounds like it could be a similar type of set up, except the named individuals disappeared a long time ago and never passed the legal responsibility. Thus the estate isn't being managed as it should be because no one is taking the responsibility. That has implications if there's problems with the building for example.

Given my BILs experience, I'd run a mile. Even if you can get a mortgage this problem isn't going away and could rear its head again when you come to sell making it difficult to do so. Or you could find issues with maintenance which you cannot fix. And theres insurance implications.

Fat from being cheap this could easily turn into a money pit.

Go find something else thats not going to risk keeping you awake at night.

You're slowly learning the first rule in sales: if it sounds too good to be true, it is.

This is cheap because its likely to end up a complete bloody nightmare for you.

No maintenance done in 20 years - do you really think that's a positive thing?

What if (more likely when) you do buy it, find problems and downstairs refuses to pay? You're then left with a potentially massive bill to pay for the roof, any damp problems, any structural problems etc.

What does the survey even say? I can't believe that was clean for a second.

Unless that downstairs neighbour comes back with a miracle, named company and all that and your solicitor can question them on maintenance, and they have proof of everything done, then run away. Otherwise, I hope you have a lot of money. You're going to need it.

You mentioned the property is cheap, it could be cheap purely for this reason.

Personally, I'd walk away - it sounds like there nothing in place for the outside maintenance of the building (even if some of what doesn't affect you, if there's a crack or repointing needs doing on the outside wall of your flat, you can't just get it done yourself and there's no one to contact or pay). Fast forward five years, you might need to move (none of us know what the future holds) and you might find it very hard to sell.

@Welcometomyhouse

Sorry if I've not explained it very well *@parietal*. This is all new to me so I'll try and explain it as best as I can. There are 4 flats in each block but we all have our own front doors. There is no communal area. My front door is on the front of the building with stairs inside leading up to my flat and my downstairs neighbours front door is on the side of the building. All of the flats in on the street have this lay out.

It is only is our flats (my downstairs neighbour and I) that are leasehold. The others, including the two flats that are adjoined are freehold. I know my solicitor was confused by this.

The language in this post really makes me feel for you.

I can see you've mentally moved in already. This is bad! (For you).

You need to tell yourself, it's not your flat. You have no claim over it. You are definitely not responsible for it.

It is simply a flat you're interested in. Don't mentally move in until you've exchanged, try to protect your emotions as this property business can be a rollercoaster!

@DerAlteMann

Frankly, I'd walk away. If nothing else ask your solicitor if you could be liable, as the current occupier, for 20-odd years unpaid service charges and ground rent. Whatever the answer, I wouldn't touch this with a barge pole.

This!!! Fgs…you’ll be a whole lot more anxious than you are now if something expensive creeps out of the wood works in the future. Your solicitor sounds good and experienced ….if you’ve any sense you will listen to them.

Dodge a bullet …don’t buy it.

What an unholy mess.

I'm astonished that none of the owners have tried to sort this out, tbh.

I wouldn't touch it with a bargepole. Not only could you end up with significant liabilities arising from 20 years of no maintenance, but I think it would cost a lot to sort out the legals and it sounds as though the owners of the 2 freehold flats and the other leashold aren't interested.

I'd also be a bit cross with the vendors for not being upfront about this, tbh, wasting your time and money. So disappointing for you.

Also, with this sort of layout and no work for 20 years you need a survey. The valuation done by the mortgage company is not enough - a lot of the time that is done as a drive by and the valuer doesn’t even stop the car. While it is called a valuation survey, it is not actually a survey.

I had something similar happen to me when I put my first offer in on a beautiful attic conversion flat nearly 40 years ago. I can still remember how lovely the flat was (hardwood floors, massive skylights, window seat, view over a park) and how much I cried when it all fell through but it was for the best. If I had gone ahead and bought it I might have been lumbered with massive costs that I couldn't have paid and the BS could have repossessed. Or I might have been unable to sell it on and have been lumbered with it for decades. Or the building could have fallen into decay/burned leaving me homeless but still liable for my mortgage.

I know it's gutting but that's why we have to pay solicitors when buying a house. They can help us avoid very costly mistakes that we might otherwise make because our heart is ruling our head.

It sucks that you are losing your dream home but it's better to lose it now before you have invested years of mortgage payments in it than to buy it and then discover you have bought a liability not an asset. I'd cut your losses now. Withdraw your offer and start your search for a new home again.

OP, run away.

I was in the process of buying a leasehold flat this summer in my dream location. It needed some work, but it was an absolute steal. I couldn't believe my luck.

Then when the solicitor started digging I realised why the price was so great.

The downstairs neighbour was the freeholder - they were skint and had not done any maintenance on the property in years. They weren't interested in spending any money on the property, and as all maintenance costs had to be split, I knew they would be obstructive when it came to me trying to get money out of them for the major roof repairs my survey had highlighted.

The lease was also so old that the only copy available was a photocopy of a coffee-stained typewritten document from the 60s. As my solicitor said, it wasn't worth the paper it was written on.

The seller kept trying to promise me that the landlords were lovely, that they wouldn't have a problem with paying the repairs, etc - but I knew it was a nightmare waiting to happen. I wasn't prepared to sink all my hard earned savings into what was essentially a gentleman's agreement that my landlord wasn't going to screw me over. So as much as I loved it, I had to walk away.

You are in the same position. I know it's heartbreaking, but there will be something else. This flat will cause you no end of misery if you proceed with the sale, trust me.

Also, NEVER buy a property without a survey. Not a mortgage company valuation survey, an actual property survey done by a surveyor. When a building hasn't had any repairs done on it in over 20 years, there will be issues somewhere, and you don't want to find out about them once you've moved in and you're placing buckets on the floor to catch the leaks.

Finally, leasehold isn't always a nightmare. The property I was buying was going to be a second home, but my primary residence is also a leasehold flat. The difference is that my primary residence is ex council and my landlord is therefore my local council, who takes care of everything and obviously has to be totally above board. Yes the service charge is inflated and yes sometimes they want to do expensive repairs that I don't necessarily see the need for, but overall, I actually feel very secure to be living somewhere that's so well looked after without me needing to do anything other than pay my direct debit to them every month. So leasehold doesn't have to be a dealbreaker - but it really does depend on who the landlord is.

You need to walk away as you don't actually know what you are getting for your money.

The flat is cheap compared to most properties in my area

And now you know why.

Run a mile OP. This is not the perfect flat. It is a rubbish flat. It might look nice and be the size you're looking for, but it is going to be a nightmare the second anything goes wrong in that building.

Walk away. There is always another property. There isnt an endless pit of money to fix whatever goes wrong while you own this flat, and you may never be able to sell it because you wont find another naive rather silly person to buy it from you.

I’d also walk away, if you manage to buy it and get a mortgage on it you’ll only have problems when you try and sell it.

Why is your solicitor doing all the work? Surely it’s the vendors responsibility? Legal fees soon rack up, I’d personally throw it back to the vendor to come up with answers or you pull out. Otherwise you could well end up with a large bill and no flat!

You need to pull out now. It's not the perfect flat, it's cheap for a reason. If you ever try and sell it you'll find your buyers have the same issues you're having now but even further down the line when maintenance issues are even more pressing.

Also, you should never buy or think about buying a property unless you've had a proper survey done yourself. There could be tonnes of other issues waiting to be uncovered that would cost you ££££.

OP, I know it is hard but I think you need to walk away from this one.

I had to walk away several years ago from a house that was not mortgageable and uninsurable. The builders had not got the builders guarantee, or had it signed off properly, so nobody would touch it without the relevant paperwork and we couldn't have insured it until it had stood for 3 years. The agent dropped the property after that and it was rented out.

It broke my heart but we had no choice as we just couldn't buy it.

We also have a similar property to yours nearby, 3 flats with a management company that nobody can get hold of , and the flats just can't sell.

It is best to walk away now before you put any further money into it.

I don't understand the position with the company registration. I thought all companies had to fie accounts every year and got struck off if they didn't? Has this company filed accounts?

[quote Welcometomyhouse]@TakeYourFinalPosition the management company are the freeholder... sorry I should have said that in my op.

My solicitor has looked them up on companies house and it doesn't say anything about the company going bust or if they are still active. They changed addresses in 1989 but that's all she can find. I spoke with another neighbour tonight who lives in one of the flats across the street and she said that she's never had to pay any service charges. I was hoping to catch the lady who lives in the downstairs flat but she wasn't in. I've left my number so hopefully she will ring me at some point this week so I can ask her if she's paid for any repairs since moving in, she has also lived there for 20+ years.

I might have to walk away. It is absolutely devastating tbh. The flat is cheap compared to most properties in my area. In a lovely town, newly refurbished and decorated. Properties like this one at this price rarely come up.[/quote]
Try calling companies House. They sometimes have documents they have access to that don't show online. Given the dates it may be unlikely but given how much is on the line I would make the call. Documents can be requested for £3

Pull out.
It's a disaster waiting to happen.
It's probably cheaper because of this issue but will end up costing you more in the long run.