Chapters of the article
Indeed, the purchase of owner-occupied property in insolvency proceedings differs in many ways. In fact, the sale is not essentially decided by the owner himself, who has very limited “powers” at the moment.
Are you buying the property of an owner in insolvency proceedings?
It pays to be very cautious and consult a lawyer about the whole procedure. We will provide you with a complete contractual and legal service related to the purchase or sale of a property. We can handle it within 48 hours, flawlessly and professionally.
Who decides in insolvency?
The insolvency procedure is as follows:
If the insolvency court approves the debtor’s proposal for insolvency, it alsolists all of the debtor’s assets in the inventory and prepares a repayment schedule listing all creditors and their claims. The court then also appoints an insolvency administrator.
Once it is decided to monetise the property in the insolvency proceedings, a direct sale takes place, where bidders submit public bids and the highest bid wins.
What to look out for when buying?
When buying a property in insolvency proceedings, it is a good idea to be cautious and to seek advice from experts, both in law and in construction. This is because the insolvency practitioner is not liable for any hidden defects and is selling the property in its current state of repair. It is therefore worth checking the condition of the property thoroughly.
Tip: Each property has its own specifics that must be taken into account when selling it. When buying an older house, you will need to take care of different details than with a new house. How exactly to proceed when selling or buying such a house and what to remember in the contract? This is the subject of a separate article.
Who am I signing a contract with?
However, what makes the sale of a property in insolvency proceedings most different from a normal sale is the person of the insolvency administrator. The insolvency practitioner plays an important role in the whole process. He or she is authorised to dispose of the debtor’s property and signs all documents on his or her behalf. So do not sign anything with the debtor himself. However, you can still discuss the purchase of the property with the debtor in advance. It may also be advantageous for the debtor if the property is purchased by a person of his choice, with whom he may agree on a later lease. Even in such a case, thecourt or the creditors’ committee has the final say .
Are there exceptions? In insolvency proceedings, the debtor is prohibited from disposing of the property belonging to the estate in any way. However, it is theoretically possible that the debtor can dispose of the property after the insolvency has been approved. The basic condition is that the property is not subject to security and is, for example, residential property which the owner can dispose of.
Do I get the debts attached to the property?
You do not have to worry about this, as no debts of the former owner are transferred to the new owner of the building. The sale of the property and other assets is aimed at repaying them.
By monetising the debtor’s property, all legal defects registered on the title deed are extinguished. The only exception are easements, which are not debts but certain restrictions attached to the property (for example, a road easement). However, you can count on certain extra steps.
What extra steps do you have to take after buying a property?
Once you have purchased the property, you must register the property at your own expense with the Land Registry:
- Certificate of extinction of lien.
- A petition for deletion of the lien.
You will obtain this certificate from the insolvency administrator, on the basis of which the land registry office will then delete the lien attached to the property. This is a very important step, as it clears the property of previous liabilities in insolvency. Do not leave anything to chance and have a complete proposal prepared by a lawyer. A mistake in the filing could easily cost you the entire property.
Tip: Are you in insolvency and afraid of losing the roof over your head? Under what conditions can the owner sell his property? What can the owner influence in the eventual sale and what happens if the sale proceeds exceed the secured claims? We have addressed this in a separate article.
Conflicts with the former owner
The original owner is unlikely to sell the property voluntarily and may well not want to move out. You can either take advantage of this situation and negotiate a lease with him (provided you have a guarantee that he can pay the rent). A less pleasant and much more radical option is to file an eviction action.
Tip: Is your lease with your tenant coming to an end? How long after the end of the lease does the tenant have to vacate the apartment? When can you enter the apartment yourself and what can be done if the tenant refuses to vacate?
What about the price of the property being sold?
The price is usually based on an expert’s report. But then, of course, it depends on the demand, which can reduce or increase the originally proposed price. The search for a buyer can take place through an advertisement, a real estate agency, but the debtor himself can also get involved in the search for a buyer.
As regards where the funds raised from the sale of the property go, if a secured property is sold in the insolvency proceedings, the secured creditor’s claim is first satisfied from the proceeds. Then, any residue from the sale proceeds (the so-called “hyperloan”) is used to make extraordinary payments to unsecured creditors.
What is the situation with a cooperative apartment?
As we have pointed out several times in our articles, the “owner” of a cooperative apartment is not the actual owner from a legal point of view. He or she only has membership rights in the housing cooperative and the right to rent a specific cooperative apartment corresponds to these rights. It is not, on the other hand, an ordinary lease. And in the context of the debt settlement process, ownership of the membership rights to a cooperative flat is a significant benefit that is very close to ownership of a privately owned flat. In practice, the membership rights can then be sold at a price commensurate with the value of the flat. However, the debtor will lose the possibility of continuing to live in the flat.