There are 3 main differences between buying a house and buying an apartment in Ireland.
the title to an apartment is always leasehold unlike the freehold title of a house.
an apartment will involve common areas as it will be part of a building scheme.
an apartment will involve a management company to manage the common areas eg stairs, entrance etc.
A lease is always required for an apartment because it allows the entering into mutual covenants by the apartment owners and the management company. For example the apartment owners will covenant to pay the management company fee and agree to restrictions for harmonious communal living with their neighbours and the management company will covenant to maintain the common areas.
These covenants and conditions can be enforced on later owners of the apartments.Prior to the enactment of the Land and Conveyancing Law Reform Act, 2009 there was a difficulty in enforcing covenants against later purchasers of freehold land. this is no longer the case with the passing of the Land and Conveyancing Law Reform Act, 2009.
Parties to the Lease
There are generally 3 parties to the lease:
the lessor (developer/builder)
the lessee (apartment owner)
the management company.
A fourth party could be a lender who has a charge over the land.
The Apartment Property
The lease of an apartment will demise/transfer a cube of space including the surfaces of floors, ceilings and walls but excluding all structural parts. It may also include a balcony, patio or car parking space but these are more commonly excluded with an exclusive licence granted to the apartment purchaser.
This allows the management company and lessor to retain control of these areas and the management company is responsible for maintenance and repairs.
The lease for the apartment will contain a provision for a nominal rent with a provision for a rent review. This prevents the apartment owner from buying out the ground rent which would end the lease and break up the relationship between lessor and lessee.
The Lease Covenants
There are 3 main covenants in an apartment lease:
a covenant by the lessee to perform certain obligations, the most important of which are to pay the service charge and comply with the rules and regulations of the management company;
a covenant by the lessor to provide certain services, the most important of which is to maintain the apartment building and the common areas which includes insuring the building against the usual risks and public liability insurance in respect of the common areas, maintain proper books of account, and take steps to enforce performance of the lessees’ obligations under the leases;
a covenant by the management company to provide the same services once the management company agreement has been completed and the common areas transferred over to it.
The Management Scheme and Management Company
A scheme for the management of the common areas will be put in place which will be implemented by a management company specifically set up for this purpose.
What typically happens is the developer sets up the management company and signs a contract with the management company for the transfer of the common areas to the company. Each apartment owner then becomes a member of the management company as he/she purchases an apartment.
Once all the apartments have been sold the developer transfers the common areas to the management company which is ultimately controlled by the apartment owners.
Purchasing a Second Hand Apartment
As an apartment purchaser is only purchasing a “cube of space” she needs to be certain that she has access to the apartment and other appropriate “easements” from the lessor or management company.
A surveyor carrying out a survey for the purchase of an apartment should also check out the entire building because the new apartment owner will be contributing with her service charge to a fund for the repair and maintenance of the common areas.
Are your parents going to give you a hand, by way of a site or some financial assistance?
If you are borrowing money from a lender and you are in receipt of a benefit from, for example, a parent you will be required to have a Deed of Confirmation executed by your parents.
Deed of Confirmation
A Deed of Confirmation is a deed which, in short, confirms the priority position of the mortgage to the bank.
Let me explain by way of an example: suppose you are being given a site by your parents to allow you build a house. The bank has agreed to loan you the money to build the house and will want to secure its loan on the site of your newly built property.
The bank will be concerned that if they were ever obliged to try to enforce their security that your parents will claim to have an equal right in the property as a result of the gift of the site to you. The purpose of the Deed of confirmation, then, is to reassure the bank that their security will take priority over any beneficial interest your parents might claim, and the bank will be able to go ahead and enforce its security.
What’s in a Deed of Confirmation?
Each lender’s Dee of Confirmation, supplied in its loan pack to the borrower’s solicitor, will contain similar provisions. These will include:
The Deed of Confirmation must be executed (signed) by any person who may have a beneficial interest in the property
The Deed of Confirmation will further assure the mortgaged property to the lender and confirm and ratify the security created by the Mortgage, and its conditions
The Deed also states that all the rights, powers and entitlements that the lender has in respect of its mortgage can be exercised without any notice to the beneficiary (the parent in this example)
The beneficiary cannot exercise any of its rights or entitlements against the mortgaged property or the mortgagor (borrower)
The beneficiary confirms that any right he/she/they have is postponed and will rank after the mortgage to the bank
The lender can assign or transfer the benefit in the Deed of Confirmation
The governing Law-Ireland-will be stated
There will also be a consent of spouse form to be signed by the spouse where the mortgaged property is the family home/shared home, and the spouse is not a joint owner and is not executing the Deed of Confirmation.
This form will confirm the full and free consent of the spouse and state that he/she does not and will not have any beneficial interest in the mortgaged property.
When conveyancing, solicitors nowadays will use a standard contract for sale, first introduced in 1976 by the Law Society of Ireland.
The introduction of this standard contract was intended to eliminate the need for individual solicitors to draft their own contracts and sought to give a fair balance of rights between buyer and seller.
The standard contract has changed many times since 1976 but comprises the following:
A memorandum of the agreement
Particulars of the property and tenure (eg freehold/leasehold)
A documents schedule
A searches schedule
Non title information sheet
General conditions of sale-51 of them.
In a standard conveyancing transaction, the vendor’s solicitor, once he has obtained instructions from his client and has investigated his client’s title, will draft the contract for sale.
Memorandum of agreement
This will include the purchase price, names of vendor and purchaser, deposit payable on singing the contract, the closing date, and the interest rate payable by the purchaser in the event of a late closing.
The deposit is generally 10%; the closing date, if one is not specified, is 5 weeks from the date of sale. The closing date can also be specified by way of a special condition in the contract.
The date of sale is the date a binding contract comes into existence. This happens when the vendor signs the contract in duplicate and sends one part back to the purchaser.
Particulars and tenure
This will contain a physical (particulars) and legal description (tenure) of the property in sale eg
ALL THAT AND THOSE the premises known as [xxxxxxxxxxxxxxxxxxxxxxxxxxx] being the property comprised in Folio [xxxxxxxxxxxxxx]F Co. Kildare
HELD in Fee Simple
This will list the documents being provided with the contract and will include the root of title, planning documents, and any document referred to in the special conditions.
This will only be applicable in respect of unregistered property.
These will be drafted by the vendor’s solicitor, but the purchaser’s solicitor may also request a special condition (for example in respect of finance) being inserted. Special conditions, if required, should be framed to suit the particular property and transaction.
If there is any conflict between a special condition and general condition, the special condition will prevail.
Purchaser’s Pre-Contract Enquiries
These can be broken down into 2 categories:
Relating to the physical location and condition of the property
Relating to the documents furnished.
Physical State of the Property
The purchaser buys the property in the condition it’s in, and the vendor is not obliged to disclose any physical defects.
For this reason, a structural survey is strongly recommended.
Other Pre-Contract Matters
Things to check include:
Any planning proposals which may affect the property eg a dump next door
Other services eg sewerage disposal
The purchaser’s solicitor will need to carefully go through the documents furnished and check he is satisfied to proceed, or raise queries.
Signing the Contract
Once the purchaser and his solicitor are happy the purchaser signs the contract in duplicate and returns them to the vendor’s solicitor.
The purchaser should arrange insurance from the time he pays the 10% deposit as he has an insurable interest in the property.
When the vendor signs both copies and returns one to the purchaser’s solicitor there is a binding contract in place.
Working Towards Completion
The parties then work towards completion with the purchaser’s solicitor raising objections and requisitions on title and getting satisfactory replies to them.
With the completion of the sale the purchaser gets the keys and all closing title (and other) documents, and the vendor’s solicitor receives the balance of the sale price.
General condition 40 of the Contract for Sale makes provision for the serving of 28 day completion notices where the sale does not close on time. This notice does not terminate the contract but makes time of the essence.
Other general conditions provide for circumstances where problems arise in relation to completion, including clauses dealing with
Arbitration (general condition 51)
Forfeiture of deposit and resale (general condition 41)
Damages for default (condition 42)
Rescission (conditions 37, 38, 39)
If you are buying a property, don’t overlook the enquiries you yourself can carry out, especially the physical state and location of the property, and access to services.
If you are buying a property in Ireland your solicitor will have to “investigate title”.
What does investigation of title mean?
The purchaser’s solicitor must ascertain
The nature of the title offered for sale
That he can acquire good marketable title on behalf of the buyer
The property to be sold is sufficiently identified in the title deeds
The title being offered is that contracted for on the contract of sale.
Bona Fide Purchaser for Value Without Notice
A bona fide purchaser for value without notice acquires good title and is unaffected by matters of which he had no notice.
However, the purchaser must carry out reasonable enquiries and inspect the property.
The purchaser must physically inspect the property because he buys subject to any defects on title which would have been apparent from inspection, for example a right of way.
Latent defects are not apparent from inspection, but the purchaser is on constructive notice of them, even if he does not have actual notice, as his solicitor needs to carry out reasonable enquiries or inspections.
86.— (1) A purchaser is not affected prejudicially by notice of any fact, instrument, matter or thing unless—
[CA 1882, s. 3]
(a) it is within the purchaser’s own knowledge or would have come to the purchaser’s knowledge if such inquiries and inspections had been made as ought reasonably to have been made by the purchaser, or
(b) in the same transaction with respect to which a question of notice to the purchaser arises, it has come to the knowledge of the purchaser’s counsel, as such, or solicitor or other agent, as such, or would have come to the knowledge of the solicitor or other agent if such inquiries and inspections had been made as ought reasonably to have been made by the solicitor or agent.
(2) Without prejudice to section 57 (4), subsection (1) does not exempt a purchaser from any liability under, or any obligation to perform or observe, any covenant, provision or restriction contained in any instrument under which the purchaser’s title is derived, immediately or mediately; and such liability or obligation may be enforced in the same manner and to the same extent as if this section had not been enacted.
(3) A purchaser is not, by reason of anything in this section, affected by notice in any case where the purchaser would not have been so affected if this section had not been enacted.
Chain of Title
The chain of title is the series of events on a title from the root of title down to the present owner.
Events on Title
Some events on title which may require further investigation include
Deaths on title-a personal representative may sell, or there may have been a devolving of title to a joint tenant where the property was jointly owned
Voluntary conveyance-is valid, but may be set aside, for example, the donor is made bankrupt within 2 years of the deed
Lost deeds in Registry of Deeds cases
Capacity of Vendors
Depending on the capacity of vendor, further investigation may be required and further proofs produced:
A trustee-the deed of trust will need to be produced showing a power of sale
A company-the company must still be registered with the Companies Registration Office
A receiver-he must be validly appointed either by a deed or court order, and there must have been an act of default re the mortgage/charge
A life tenant-he has the power of sale but not to receive the proceeds of sale which goes to the trustees
An attorney-the power of attorney will need to be produced
A surviving joint tenant
A beneficiary under a will
A personal representative
A mortgagee in possession-some basic checks need to be carried out to ensure the mortgagee properly obtained possession
Are you thinking about buying or selling a residential property?
If you have ever wondered why the purchase or sale of a house in Ireland appears to take ‘so long’, this piece will set out the steps in a residential conveyance and give you a good overview for a better understanding.
What is Conveyancing?
Conveyancing is the term used to describe property transactions, and the transfer of legal ownership of immovable property.
A conveyancing solicitor will represent one of the following parties:
The conveyancing process will generally involve 5 stages:
a) pre contract
c) post contract/pre closing
e) post closing/completion.
A Written Note/Memorandum
A contract for the sale of land, in order to be enforceable, must be in writing or a memorandum or note of the agreement must exist.
The steps in a conveyance in Ireland are designed to ensure that a purchaser is not obliged to go to the cost of carrying out a full investigation of the title being offered before the vendor is legally obliged to sell.
It is only when contracts are exchanged and binding on both parties that full examination of the title is carried out by way of the purchaser’s solicitor raising “Objections and Requisitions on Title”.
Objections and Requisitions on title are queries and requests raised in respect of the vendor’s title and other matters relevant to the property being sold.
The standard documentation used in a residential conveyancing transaction in Ireland are
the Law Society Contract for Sale (current version is 2009 one)
Objections and Requisitions on Title
Family law declarations.
Systems of Registration of Ownership of Property
There are 2 systems of registration of property in Ireland:
the Registry of Deeds and
the Land Registry.
Registry of Deeds properties tend to be in urban areas, for example Dublin, and the important thing to understand about these properties is that it deals with registration of documents, not registration of title.
The Land Registry, controlled by the Property Registration Authority, deals with registration of title and there are many counties which are compulsorily registerable eg Kildare, Meath etc.
Land Registry Documents
Land registry documents comprise a folio of a property which is in 3 parts:
part 1 gives details of the property and a map reference
part 2 gives the registered owner and class of title
part 3 lists the burdens on the title eg mortgages/charges.
Ownership of land registry property is transferred by a deed of transfer but title only passes when the transfer has been registered in Land Registry.
Please note that the list below is not exhaustive and ‘issues’ can arise at any time which may hold up the sale/purchase.
The vendor’s solicitor will need to take the following steps:
Check the seller’s title to the property.
This will involve taking up the title deeds, either from a lending institution or the vendor.
Check what sort of property is being sold eg residential home, commercial premises, licensed premises, etc.
Check that planning is in order for the property
Check the Family Home status of the property, and if it is held in sole ownership, to obtain the prior written consent of the spouse, if there is one
Ascertain whether the seller has received any notices which affect the property (eg from a local authority re compulsory purchase)
Check whether there are any flaws in the title to the property
Give the vendor a ‘section 68’ letter setting out costs and outlay which will arise
Prepare the contract for sale
Reply to requisitions on title (see below)
Draft the Family Law declaration setting out the position re the Family Home Protection Act, 1976
Check the position re outgoings for the property and see that they will be discharged prior to closing
Arrange for closing of the sale
Find out what mortgage is outstanding on the property to ensure discharge of same once funds are received from the purchaser’s solicitor
Discharge any undertakings given on closing
The purchaser’s solicitor will need to:
Read the contract and related documentation, check the title, and any special conditions in the contract
Advise the purchaser to have a full structural survey on the property carried out¹ because when buying a second hand property the principle of “caveat emptor” (buyer beware) applies
Advise on tax such as stamp duty which will be payable and ascertain whether there are any tax reliefs available
Advise the purchaser to take out insurance as the property may be underinsured or not at all and if the purchaser is taking out a mortgage the lender will want evidence that insurance is in place prior to releasing the loan cheque
Make pre contract enquiries including planning
If the contract is to be made subject to loan approval, check the relevant clause in the contract providing for this
If the contract is to be made subject to a satisfactory structural survey, draft the required clause for inclusion in contract
Give the purchaser a section 68 letter setting out his fees, outlays, and costs which will be incurred
Ensure purchaser has loan approval
Get the purchaser to sign the contract, assuming everything above is in order
Raise requisitions and objections (if any) on title
Setting out the closing documentation required and furnishing same to the vendor’s solicitor
Check the lending institutions requirements and complete and furnish the required documentation
Draft the deed of transfer to transfer the interest in the property to the purchaser
Decide on and requisition all searches to be carried out
Ensure finance will be in place to close the sale
Ensure stamp duty is paid and have the transfer registered either in Land Registry or Registry of Deeds.
¹The doctrine of “caveat emptor” (“buyer beware”) applies to the physical description of the property. The purchaser must satisfy him/herself as to the boundaries and condition of the property. This is why a purchaser must have a full structural survey carried out prior to signing the contract.
The vendor is not under a duty to disclose any physical defects in the property.
The purchaser’s solicitor needs to
check that he/she can acquire good marketable title on behalf of the purchaser
check that the title being provided is contracted for in the contract for sale
check the property in the contract is properly and adequately identified in the title documents.
Conflicts of Interest-Acting for Both Parties in a Conveyance
3. A Solicitor may not act for both Vendor and Purchaser in a Conveyancing Transaction except:
3.1 a Conveyancing Transaction comprising only the voluntary transfer of Property which is a Family Home or a Shared Home either (a) from its owner to the joint tenancy of the owner and his/her spouse or Civil Partner or (b) (where the Property is owned by spouses or Civil Partners otherwise than as joint tenants) from the owners to themselves as joint tenants;
3.2 a Conveyancing Transaction in which the Vendor and the Purchaser are Associated Companies or, in a case in which one such party comprises one or more individual persons and the other is/are a company or companies, in which the parties are Associated in accordance with Clause 2.2;
3.3 a Conveyancing Transaction where the Property being transferred is held under a bare trust and —
3.3.1 is being transferred by existing trustees to new trustees; or
3.3.2 is being transferred by trustees to a beneficiary;
3.4 a Conveyancing Transaction for value in which both the Vendor and the Purchaser are Qualified Parties and:
3.4.1 the Solicitors’ firm concerned has requested the Vendor and the Purchaser to consent to its representing both of them and has notified them in writing that it may have to give them conflicting advice and of the measures it proposes to implement in relation to such representation. Such notification shall include a statement that if a dispute shall arise between the Vendor and the Purchaser during or after the Conveyancing Transaction which is likely to result in litigation or threatened litigation (including arbitration) between them concerning the Conveyancing Transaction, the Solicitors’ firm will not act for either party in such dispute or litigation and will cease to act for both of them in the Conveyancing Transaction; and
3.4.2 following receipt of the notification at Clause 3.4.1, both Vendor and Purchaser have consented in writing to the Solicitors’ firm representing both of them on the basis specified in such notification.
Buying a House-General Tips
If you are looking at houses for sale in Ireland there are a number of priority tasks that you will need to take care of to ensure a sound investment.
You will still need to ensure
1. You have obtained finance
2. You have instructed a solicitor to act on your behalf.
At Terry Gorry & Co. Solicitors we can ensure that you are professionally represented at each stage of the purchasing process from drawing down finance to completion of your house purchase.
For example, if you are buying a second hand house in Ireland we will do the following as a matter of course:
Purchasing second hand properties
Your solicitor will
Inspect the title to the property and ensure that it is in order
Carry out searches against the property, the vendors and you as the purchasers to ensure that there are no outstanding judgments or claims on the property or issues likely to crop up to cause a hitch
For your part as the purchaser you will need to ensure that you have written loan approval before signing contracts and that you have a surveyor or engineer carry out a full survey of the property to check for any structural defects or other problems.
If this is not done then when you sign the contracts it will be deemed in law that you were aware of any problems before signing and even if these problems become apparent later on.
You engineer’s survey should also be helpful in relation to any extensions, alterations or conversions that may have been carried out on the property which may have planning implications. If this is the case then proper planning documentation will need to be supplied by the vendor’s solicitor with the title deeds.
You might also check with the local Gardai who may let you know about any social/crime problems in the area which you might not be aware of.
Generally you will need to pay 10% of the purchase price as a deposit on signing the contract to buy. It is advisable at this stage to insure the property as once you have signed the contract you are committed to completing and should the house go on fire in the meantime you could face a severe financial loss.
There will be a closing date for completion in the contract and once you sign you are committed to completing on time which can leave you open to a liability for daily interest on the full purchase price.
Clarifying and advising us of the situation with regard to the contents is also important as is carrying out a final inspection before completion to ensure that the house is left in an agreed condition and the garden is not full of rubbish which should have been disposed of by the vendors.
Checklist for Vendors of Residential Property
When selling a residential property your solicitor will need certain information from you to ensure a smooth, efficient, timely transaction.
Below you will find a checklist of information that will be required:
• Which are shared and which are in common with other properties?
• Are there any special agreements re boundaries?
• All maps and identity of the property to be checked
• Capital acquistions tax certificate of discharge?
• Probate tax certificate of discharge?
• Capital gains tax clearance certificate?
• VAT applicable? Not normally on second hand residential properties
• PPS numbers?
12. Body Corporate/Trustee
• Memo and articles of association
• Companies office search
• Trust instrument
13. Family Law
• All relevant State family law certificates?
• Is the property anybody else’s family home?
• Any other information re family law proceedings/separation etc.
• Consent to assign
• Consent to change of use
16. Fee Simple Acquired?
Increase to full replacement value if necessary.
Checklist for Purchaser of Residential Property
1. Details of the Vendor
Solicitor for vendor
Deposit/equity from sale of property
Name of lending institution
Loan application status
Structural survey/fire cover/life cover
Loan pack from bank?
3. Items included in Sale
4. Purchase of Part of Folio?
Easements including rights of way/right to light/services/maintenance
5. Structural Survey
Inspection by expert independent of lending institution
Valuer’s report for lending institution
Planning search before signing contract-check local planning office
Change in planning?
Change of use/intensification of use?
Fire certificate/building regulations?
Cover from date of signing contract
Good Marketable Title
When buying a property in Ireland, it is essential that you obtain what is known as “good marketable title”.
As the old saying goes in relation to property: “the day you buy is the day you sell”.
Many lending institutions will not advance monies where the title being offered as security is not going to be good marketable title and where the solicitor is going to have to “qualify title”.
“Title” when speaking about property is evidence of ownership of a particular person of an interest or estate in property.
“Good title” is where a vendor of property can prove that they are the legal owner of a certain estate or interest in a property. Note that 2 or more people could have an estate/interest in a property, for example, a freehold owner and a leasehold owner in respect of the same property.
“Good marketable title” is not statutorily defined. However it means the standard of title which is given and accepted by conveyancing solicitors following good conveyancing practice and rules set out by the Law Society of Ireland.
A “certificate of title” is an approved (by the Law Society of Ireland) form of certificate of title which is accepted by lending institutions arising from prudent standards of conveyancing in Ireland. This would include, inter alia,
The use of the standard Law Society of Ireland contract for sale (2009 edition is the current one)
Investigation of title is carried out using the Law Society approved Objections and Requisitions at a minimum
A freehold title or
Leasehold title with at least 70 years unexpired or
If a Land Registry leasehold title, it must be either “absolute” or “good” leasehold.
The “certificate of title” system only applies to residential property conveyancing.
It allows the lender to permit the solicitor for the purchaser to investigate title and gives responsibility to the solicitor for having the mortgage registered in the bank’s favour and secured on the property.
Certificate of Title System
The Certificate of Title System obliges the purchaser’s solicitor to give an undertaking and a certificate to the lender in a format agreed between the Law Society and the lenders. The undertaking and certificate of title are provided by the lender in his/her capacity as the borrower’s solicitor; he/she does not act for the lender.
In practice, once the loan is approved for the purchaser, the documentation containing the solicitor’s undertaking and certificate of title together with the loan offer and mortgage deed are sent to the purchaser’s solicitor.
The lender will only release the loan cheque when it has received the solicitor’s undertaking. This undertaking obliges the solicitor acting for the purchaser to ensure that
The purchaser is acquiring good marketable title to the property
The mortgage documentation is completed properly and signed by the borrower
The mortgage ranks as a first legal charge on the property
All necessary documentation is properly stamped and registered in the Registry of Deeds or Land Registry
All documentation including certificate of title is furnished to the lender.
Qualifying the Solicitor’s Undertaking
In some circumstances, for example where the solicitor is not able to obtain “good marketable title” perhaps due to a planning difficulty with the property, the solicitor will have to qualify his/her undertaking.
If this is necessary, it will have to be cleared in advance with the lender as the bank may not agree to it and may withdraw the loan offer.
“Good title” derives from a good root of title which has a number of characteristics:
It is a document or instrument of disposition
Dealing with the ownership of the whole legal and equitable estate in the property being sold
Without the aid of extrinsic evidence and
Showing nothing to cast doubt on the title of the disposing parties
It adequately identifies the property
It must be of a certain age (at least 20 years old).
Land Registry Titles
However, much of the above does not apply to a Land Registry title as title registered in Land Registry is guaranteed by the State and the Land Registry folio is evidence of ownership of the land by the registered owner.
You are entitled to rely on the Register of properties at the Land Registry without looking behind it and the State guarantee that the register is correct. However, where a title is qualified, it may merit further investigation.
Registered Titles at Land Registry
There are 3 registers kept by Land Registry:
Subsidiary (deals with fishing rights, rent charges, etc.)
Classes of Ownership
There are 4 different types of owner possible at Land Registry:
Full freehold owner
Full leasehold owner
Limited freehold owner
Limited leasehold owner
A tenant for life would be a limited owner.
Classes of Title
The different classes of title include:
Absolute-requires no further investigation
Possessory/subject to equities-requires investigation to enable conversion of title to absolute/good leasehold
Good leasehold-Land Registry has investigated the title of the lessee, but not the lessor
Qualified-this is the same as an Absolute title save for the fact that it is qualified in some way, and will require investigation when purchasing.
Investigate title to ensure you get “good marketable title” and
Ensure that the title being provided is that contracted for in the contract for sale and
Ensure the property contracted for is adequately identified in the title deeds.
As you will see from the above, purchasing a house does involve a lot of factors that you may overlook without sound legal and professional advice.
The price of such advice may appear to be costly at first glance but when you consider the consequences of a purchase or sale going wrong and the steps needed to prevent this, the cost over the lifetime of your investment, and home, is tiny.
Mortgages and Charges in Property Transactions
Mortgages and charges, and the different types of mortgages and charges can be confusing for many small business owners and home-owners.
A common question asked is “what is the difference between a mortgage and a charge?”
There is a significant legal difference between a mortgage of a registered property and an unregistered property (the latter is registered in the registry of deeds, the former is registered In the Land Registry)
The difference in reality is that a registered property is ‘charged’ ie a charge is registered on the property at Land Registry on the property but no formal transfer of ownership takes place.
An unregistered property is actually conveyed, assigned or leased by the borrower to the lending institution subject to the borrower’s right to redeem(pay off) the loan in the property. But title formally passes to the lending institution under the mortgage deed.
The Mortgage Deed
This document states that the lender has made a loan available to the borrower and the borrower guarantees to repay the loan by securing the loan against the property.
The mortgage deed will also contain a number of other covenants as a matter of course including
* A covenant to the effect that the property must be used as the borrower’s principal private residence
* A covenant to not carry out any development on the property without the consent in writing of the lender
* A covenant to insure the property and the interest of the lender noted on the policy.
It is important to bear in mind that these are standard covenants in mortgages with the main banks; it is crucial to read or have a legal professional read the additional covenants if dealing with a sub-prime lender or a smaller financial institution.
It is important to note that the mortgage document will often refer back to the letter of loan offer which may contain additional covenants and conditions. It may also contain additional circumstances which covers the event of default in mortgage payments.
Types of Mortgage
1. Principal Sums
This mortgage is for a fixed sum; it is less used in practice now as most banks will issue ‘all sums due’ mortgages.
2. All sums due
There is generally an all sums due clause in most mortgages now and this has a significant impact on a person’s finances if they do not know what it means.
It means essentially that the borrower is pledging their property not just for the property in question but for ALL indebtedness to the bank, now or in the future.(credit card, car loan etc.) This is obviously of huge importance as many people will spread their financial exposure between various banks in an attempt to create a wall between different loans but this clause means the bank can use the house as security for all borrowing.
Other types of mortgage include annuity and endowment mortgages, although the latter have become less frequent.
Selling Your Property and Your Mortgage
When selling your house your solicitor will take up your title deeds from the lending institution on accountable trust receipt (ATR). This means that your solicitor will give an undertaking to hold your deeds in trust for the bank and then discharge your mortgage once the sale has closed-this is called vacating the mortgage. It is vital therefore that your solicitor checks with the bank that the sale proceeds will be sufficient to discharge all indebtedness secured against the property, not just the home loan.
Your solicitor, when drafting the contract for sale, will insert a special condition that the property is subject to a charge (mortgage) and this will be discharged on closing.
When you are buying a property your solicitor will probably insert a special condition making the purchase subject to loan approval. The drafting of this clause is important as it needs to cover circumstances where you have a loan offer but are unable to comply with some of the conditions of the loan offer.
It should also provide for either party rescinding the contract should loan approval not be forthcoming.
In residential transactions, your solicitor is required to give an undertaking, together with proof of professional indemnity insurance, and certificate of title to the lender in an agreed format with the Law Society of Ireland. This undertaking and certificate of title documentation is sent to your solicitor once your mortgage is approved.
The bank will only release the loan cheque to allow completion of the sale when they have received the solicitor’s undertaking duly completed. The undertaking obliges the solicitor to ensure
that the borrower will acquire good marketable title to the property
that the borrower has executed all the necessary loan documentation, mortgage deed etc.
to register the mortgage in the appropriate registry (Registry of Deeds or Land Registry) as a legal charge on the property
to lodge the title deeds and the solicitor’s Certificate of Title with the lender.
Circumstances may arise, for example if there is an unauthorised development on the property, where your solicitor will have to qualify the undertaking. Any such qualifications must be cleared in advance with the lender.
Borrower Falls Behind in Payments
Where a borrower falls behind in his/her payments there are a number of options open to the lender.
These include suing the borrower for the amount outstanding but this is unsatisfactory as the amount outstanding is likely to increase. The lender is going to want to exercise its power against the security for the loan.
This procedure is rare in Ireland and involves the bank taking court proceedings to have the borrower’s interest wiped out and the bank becoming owner of the property.
Court order for possession and then sale
This is more common in Ireland and the bank has the power to sell the property without going to court, in accordance with the terms of the mortgage.
However they will be unable to sell without vacant possession so they will go to court to obtain an order for possession.
If the property is commercial the bank will appoint a receiver on foot of their mortgage and his duty will be to receive any rents due and pay them towards the mortgage and to manage the property with a view to an ultimate sale.
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