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?

@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.

So the building that your flat is in has 4 flats in total - 2 ground floor, 2 first floor.

One ‘set’ of ground floor and first floor owns as freeholders?

They must own as ‘share of freehold’. They should own it in equal fourths, with your flat and the other downstairs flat being the other shareholders. Then, between the 4 flats you are all responsible for maintaining the building (repairs), paying the insurance etc. and split all costs by 4. Usually there is a ‘sinking fund’ everyone pays into every year so that there’s no big bills that can become disputed and the money is there in case of need. In a big block this can be handled by a management company - but a block of 4 owners could act without if necessary, setting up their own ‘company’ with equal voting rights etc and trustees of bank accounts.

If the other flats in the building do in fact legally own in this way (share of freehold), they must have bought the rights from someone.

So those owners are the ones you need to talk to.

It might turn out they don’t actually own what they think they do either, and aren’t interested in sorting it out. Most people aren’t thrilled to pay more out, or do loads of admin like setting up a company and jumping the legal hoops needed. Of course, as your solicitor rightly points out if the roof caves in or the drains block, they’ll regret it then because there will be a massive and disputed bill that no one wants to pay. So you don’t want to let yourself in for that.

If you talk to all the owners in the block - ideally along with the daughter who is trying to sell, so she can let them see it’s devaluing their property and making it unsellable not to have this sorted - you might come to an agreement and get it sorted.

But it is a SHITLOAD of hassle and honestly I would start to think seriously about walking away now unless it’s the nicest flat you’ve ever seen (ignore the ‘value’ for now) and you’d be happy to live there if you found out tomorrow the roof needed extensive repairs immediately…

I understand what you're saying @WingingItEveryDay7 but It's really not as simple as just walking away when I've spent all this time and money so far. This is what my solicitor is looking into as apparently there might be ways around it. It can't be the first that a property has had an absent freeholder. I could possibly pay for insurance myself which would cover the building etc. Once she hears back from the other side she can then go to the lender with the information that she has obviously then it's their decision...

@TheWoleb my solicitor hasn't said anything of the sort and believe me, she has no issues with saying it how it is... she said that the property might be unmortgageable but she needs to dig deeper and speak to the other side.

@Welcometomyhouse

I understand what you're saying *@WingingItEveryDay7* but It's really not as simple as just walking away when I've spent all this time and money so far. This is what my solicitor is looking into as apparently there might be ways around it. It can't be the first that a property has had an absent freeholder. I could possibly pay for insurance myself which would cover the building etc. Once she hears back from the other side she can then go to the lender with the information that she has obviously then it's their decision...

I work within the insurance industry and honestly, it's not that simple. For a start, you cannot insure something you do not legally own. Secondly, the insurance will be useless if you only insure your flat. The insurer cannot just rebuild your flat if the one below you is also damaged, they can't build it on stilts can they?

I understand you've put a lot of time and money into this, but if your solicitor cannot trace who is responsible you really do need to cut your losses. Sorry OP.

Wondering if the other lease holders can assert ownership if they've been living there without an active freeholder for 20 years...

Seriously OP, there's an opportunity for a cheap flat and even a free freehold by legal shenanigans.

But legal shenanigans cost money and time and nerve. You're probably better walking away

@Welcometomyhouse

This is the issue *@Lovetoplan*. It seems that the freeholder (who is the management company) no longer exist. Ground rent and service charges have not been collected in over 20 years. I'm actually not sure if they've ever been collected tbh. I've tried to look them up on companies house but I can't find anything, although they must be on there as my solicitor has looked them up previously. Estate agent never came back to me with the documents either . I was really pissed off today. Sellers solicitor still not come back to mine so my solicitor is going to chase them up tomorrow and also phone the lender and see what we need for this to go through. Really really frustrating! I don't think I can wait another 3-4 weeks to see if the property is mortgageable or not.

Do - it is NOT currently mortgageable as no one has buildings insurance on it.

The only possibility is that the other 2 flats - the ‘adjoining’ ones you describe them as, but they stare part of the same building - have buildings insurance on the whole thing, between them, and are in effect the entity that the other 2 flats (yours and downstairs neighbour) should be paying ground rent etc to. And because they don’t understand what their responsibility is they haven’t bothered.

The other 2 flats in the building are where you need to direct your efforts - or get the estate agent to earn their money and direct their efforts.

Tell the vendor and the estate agent that. Forget about the ‘folded’ management company - get someone to figure out how the other 2 flats in the building own legally, if there’s 4 flats in total under the same roof…

Yes, I'd also be very wary. Your solicitor is correct to outline these issues.

No insurance is a big no no. You could lose hundreds of thousands if, for example, the roof fell in or there was a fire. Insurers can be funny about insuring a place that has not been insured for a while previously.

If there is no sinking fund and repairs have not taken place for 20 years, you will probably be facing a substantial bill soon. This happened to me. I bought a property without a sinking fund and a silent management company. A couple of months after I bought it I was sent a bill for £26K. it was a horrendous moment. My solicitor had warned me.

How many other leaseholders (flat owners) are there? A small property with say four leaseholders in theory could take over the management of the property (which is pretty simple and legal to enact) and do your own repairs as long as each leaseholder agrees but the more leaseholders there are, the less likely they are to agree and this can make things very difficult.

Even if you do buy this property it will be very difficult to sell. If you decide to go ahead, prior to exchange you should either force the leaseholder to set up new management arrangements, or set up a right to manage agreement with the other flat owners and arrange buildings insurance so you can get your own contents insurance. Then the vendor should reduce the price by about £20K+ to account for repairs that were not done during their occupation. Call in a surveyor to look at likely repairs and the cost.

This will be a big ongoing headache and you'd be better off to cut your losses and find another property that is properly set up and managed.

Good luck, I hope you find a way to resolve it.

Run away and thank your solicitor they spotted it.

Find somewhere else

Incidentally I had a friend who bought a property in legal limbo. The freeholder (who was also a flat owner) had died intestate and some of his children had just occupied the flat rather than go through probate incase they had to share it with other children. It cost £80 to establish rightful owners, get a new lease and four years to sell the property.

Gosh, how is something like this allowed to happen? I'm really really cross to be honest. They all knew about this from the beginning and just brushed it off and said that I could get an indemnity policy put in place to cover this issue. As a first time buyer with no legal experience I thought this would be ok and it was only until my solicitor explained it to me 8 weeks later did I realise how serious it was and how much of an impact it would have on the mortgage. I'm so angry to be honest, I really am. I know the seller will have incurred costs but she'll sell that flat eventually, probably to a cash buyer and will make her money back, meanwhile I've spent over 1k in solicitors fees (I know it doesn't seem like much, but it is when I've saved hard for a long time to afford this) and have nothing to show for it. I can't believe their allowed to just get away with something like this in all honesty.

Now I understand what people mean when they say the buying/selling process in this country is a joke. I'm so pissed off and upset. Buying your first property is suppose to be an exciting/happy time and this has just ruined everything. No wonder people rent, who can be arsed with the stress and hassle of buying!

Sellers solicitor still not come back to mine so my solicitor is going to chase them up tomorrow and also phone the lender and see what we need for this to go through.
OMG - so you are pushing ahead with this distastrous potential purchase?

Really really frustrating! I don't think I can wait another 3-4 weeks to see if the property is mortgageable or not.
Don't wait a moment longer. Pull out, & spend the next 3 - 4 weeks finding something more suitable.

Just can't believe something like this can happen 9 weeks down the line... all this money and time wasted and I'll probably have fuck all to show for it
OP, if you pull out now you will have plenty to show for it.
Peace of mind, a learning experience, & a swerve on the disastrous financial & legal repercussions you still seem to be unable to accept are real & potentially ruinous to you.

@ChargingBuck there isn't anything else in the area or further afield that I can afford unfortunately.

I'm going to speak to my solicitor tomorrow and ask for her brutal advice.

"They all knew about this from the beginning and just brushed it off and said that I could get an indemnity policy put in place to cover this issue"

If you have this in writing, submit an invoice for the costs incurred by you so far based on their advice. Costs you nothing if you type it yourself, and if they're that naïve they might even pay it...

It can't be the first that a property has had an absent freeholder.

Of course it isn't.

How else do you think there is such a wealth of information available about the raft of repercussions suffered by buyers who bought such properties?

You are opening yourself up to years of ongoing legal battles, or to a sudden re-appearance of Parties Unknown who will sue you for decades of unpaid rent, & to a building where you will be responsible for years of unattended to maintenance, whether it solely your own flat, or the rest of the building that's affected.

Buying a home is rife with disappointments. Do yourself a favour, & stop stubbornly chasing this one - it's a bad egg, & you will be left dealing with the stink.

Everything sweetginger says!

We bought a share of freehold flat - all above board, management company and sinking fund in place, albeit small sinking fund as it had not been share of freehold for very many years and so the funds were building up. Before exchange could happen our vendor needed to pay his arrears for the service charges he’d allowed to build up - that was a condition of the mortgage etc as well as seeing accounts and buildings insurance and liability insurance etc. But a month after we bought (top of our budget), the roof needed extensive repairs. Swallowing up the sinking fund whole and adding huge amounts to the service charges for the next 3 years. We bought knowing that there could be a repairs issue but the timing was honestly shocking. It was a much larger block than yours but when I say be sure you’d be happy to live there even if you got a massive unexpected bill I’m not kidding! Roof repairs also mean scaffolding, and tradespeople banging around and general headaches.

You might find £1,000 is a small price to pay in the long-run. If you can’t afford to lose £1K paradoxically you might not be able to afford to buy this flat. Look up the ‘sunk costs fallacy’ and be on your guard.

I know of a whole development of apartments like this. They are in blocks of two - one on the ground floor and the other on the first. The builders went bust and eventually the local council started cutting the grass around the buildings. There is supposed to be a peppercorn ground rent but there is no one to collect it, and no management company or charges either.

Each resident pays their own insurance as you would if it was a house, and it was not difficult or expensive to get buildings insurance on apartments.

The re-sale market is strong in this area and these properties have increased in value along with the others in the area.

Don’t walk away until you absolutely know it is a problem. Just because it’s unusual doesn’t necessarily make it a problem.

[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]
Ask yourself why they are cheap in comparison to others in your area. Usually there’s a reason for it and normally it’s because there’s problems

£1k is absolutely nothing in the grand scheme of what you may be liable for if you go ahead and there are issues. Your solicitor should be telling you to pull out. Mine did.

Beware the sunk costs fallacy!

[quote Welcometomyhouse]@ChargingBuck there isn't anything else in the area or further afield that I can afford unfortunately.

I'm going to speak to my solicitor tomorrow and ask for her brutal advice. [/quote]
My dear, you can't afford this one either.

You have no idea what it might cost you once it's your legal responsibility, but it's entirely possible that it's more than you could afford to pay. What will you do then - sell it? Suppose your desired buyers are wiser than you, & you get stuck with it? & what then ... repossession, when you can't afford both the mortgage and the unexpected legal/building costs?

Years ago, I set my heart on a gorgeous, quirky cottage that needed a fair bit of attention. I had enough experience by then to size up the most likely required works & cost them up. It looked like I could turn a £150k property into a £200k + one, in about 5 years, with minimal outlay.

I confirmed this by hiring a surveyor to personally take me round the cottage, addressing every item on my list & looking for any more potential problems. It was very gratifying to have him - a professional with 30 years surveying under his belt - agree my figures, I became very invested in the cottage & the process, & couldn't wait to get started.

However ... he noticed a problem with a garden wall over the neighbouring canal. The wall was the property of the water company, whose responsibility it would be to fix the problem. But his advice was that - even if I banded all the neighbours together to tackle the water company - it would be very difficult to get the company to accept that the repairs were urgent & to get them to agree a timeline.
His advice was that I could get caught up in a years-long legal wrangle with a company that did not wish to take responsibility & could afford to throw far more money at smart lawyers than I could. That it would affect the resale value & also the potential to resell at all - i.e. I could get stuck with a 'difficult' & legally expensive property.

It was hard, but I walked away, & I've never regretted it.
Listen to advice OP.

You will find something affordable if you make it your mission to do so. Something that needs a lot of cosmetic work for example - stuff that you can take your time over as you eke out your income to cover both mortgage & refurb costs. Don't risk your peace of mind & security over this property. It's "affordable" for good reasons.

If you can bear it, walk away from potential trouble. Theres no such thing as a gift horse, if it sounds too good to be true, it probably is.

You say the freeholder is the management company. But the management company might have folded. But someone must own the flat. If the company folded, even so, the flat is an asset that would get passed on to creditors or somebody. Have you checked the land registry records? if the freeholder of the property can't be located then I honestly don't see how the flat can be sold. In fact, I am very surprised an estate agent took it on. What's the lease length, because it looks like you won't be able to renew, so it needs to be 80 years plus however long you want to live there. Which had better be a long time because in its present situation it's surely unsalable. Certainly I cannot imagine any lender would lend on this. Should you default, they repossess, and then want to sell off the property themselves, how on earth would they do it? TBH putting the flat on the market at all seems a bit cheeky. Someone might say "it's the leasehold that is being sold" but a leasehold is worthless if the freehold title is unclear.

I personally wouldnt touch it with a barge pole. I;m in a leasehold flat and have had lots of issues getting stuff done with the freeholder being around!. The Leasehold Advisory Service may be able to give you good advice this. They give a free 15 minute consultation by phone. www.lease-advice.org/

I cannot believe you are even still thinking about buying this flat.
Pull out. It's just an absolute nightmare.
Yes you've paid 1K already but that is absolutely not a reason to go ahead with something which is going to end up costing an absolute fortune.

@Welcometomyhouse

I know *@3GreenPullups*. It's beyond ridiculous. My mum is really angry on my behalf and has said she can't believe I've had to do all this running around (even having to go and speak with the neighbours) because nobody can get their act together and get the information that we need to progress.

I've also seen first hand how callous estate agents can be! My solicitor believes they knew about this all along and just brushed it under the carpet, hoping because I was a young first time buyer I wouldn't notice or query anything. I agree it's lucky that I have a fantastic solicitor, she really is brilliant and I honestly can't fault her. Just so so disappointed. I know it's only been 9 weeks but to get to this point and be told it might not be possible is absolutely heartbreaking. What should have been a straightforward purchase has turned into a nightmare.

I mean this gently OP... It really isn't a straightforward purchase...

It's a real pity you've fallen for the flat and in your heart you've already moved in...

A close family member was a property lawyer... He told me to avoid any leasehold/flying freehold/absent leaseholders... He said his in tray was full of these type of cases.

It's easy for people to say pull out when their not stuck renting and paying off someone else's mortgage! I despise renting and I'm fucking depressed here. Sorry, but I don't think people realise how heartbreaking it is to walk away from something that you've had your heart set on from day 1. All the leg work that my solicitor and I have done and to get to the very last stage and have this happen just fucking sucks. 1k might not be a lot to some people but it is to me. I'm not a cash buyer with thousands in the bank.

I know you're all just trying to be help but sometimes it's just nice to be told that fucking sucks and I'm sorry it happened to you