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Paul

Think you will find insurance only covers the lender. There is slight risk that a transaction can be "set aside" If a vendor goes bankrupt following a BMV sale. This is to protect lendors from someone selling BMV to friends/family to avoid paying debts. A sale to a proffesional property investor is unlikley to be set aside, although if it was you would get your purchase price back so your only loss would be costs/fees etc, you would not just lose the property.

Hi Leaftleg,

Sorry for being a bit thick, but what do you exactly mean by "setting aside"? If you could illustrate with an example, say

OMV £100k

BMV purchase price £70k

Buying / selling costs - £7k

What happens if vendor is bankrupt? - Debtors come after the bank or me for £30k? This is covered by indemnity insurance? What happens to the property? If you could clarify in a simple way for a simple mind like mine, that will be great! 

Does it make a difference if it is a rent back or buy to sell? Does this mean my other solicitor was right??? BMV investors do not get covered! Oh no! But good to know that losses are minimised and you don't lose your property.

Hopefully this does not happen too often, will buy a copy of rich dad poor dad for every vendor I pruchase from! Change their financial mindset and habits hopefully!

Cheers!

Cheong

Hope you don't mind me jumping in here JC. 

Setting aside the sale basically means cancelling the sale and the property reverting to it's previous owner (and bank).  The purchase price would be returned to the buyer so that your loss would be just your buying costs.

If you take a look at my Blog this has the bankruptcy document linked to it. It if a fairly long and tedious read, but worth reading so you know what the Official Receiver is looking for. This will also highlight that they are renting a property that they have previously sold - Red Flag!

With regards to the Insurance I too have been under the impression that it protects the lender. However I do not know this for certain. The other thing that occurs to me, is the Insurance going to pay out? As I am sure one of the questions will be "how did you vet your tenant?". Your answer, "err, well he was deep in the cack, could not pay the mortgage, so I made him my tenant."  I wonder if they would cover this scenario?

I do currently know of two BMV properties in my area, where the tenant has gone bankrupt. The OR is now investigating this very thoroughly. I am watching these closely.

Pal's suggestion (Post) is the best insurance policy I can think of. This makes a BMV purchase into an MV purchase, as it is relatively easy for a chartered surveyor to down value a property to match your purchase.

Pal:

Sorry Nigel, I didn't realise you meant if the vendor later goes bankrupt.  Indemnity insurance is the way to go on this if you feel that the vendor is reaching this position. 

Alternatively, if you get an initial 'red book' valuation showing the value to be close to what you are paying, that can be a very good defence.

Paul - thats because I didnt put the vendor going bankrupt in the OP - you mean you can't mind read from Eastbourne to Brighton ??

Thanks JD and others. As JCC said - it is a bit worrying in that the lender gets covered for the mortgage payment but the profit/loss and costs of the BMVer doesn't.

But then again, I suppose thats part of the 'game' of it all. Its one of the risks that we take on board and for £150-£200 for the indemnity, I would think that for anyone in the 'cack' we purchase from, this should be a must.

Paul - could you get your own survey done on it - of course you would have one valuing it 15%+ more for the mortgage and this of course would be shooting yourself in the foot if you were to use this. Would that stand up if it was a RICS surveyor etc.. but paid for by you?

Has anyone ever heard of the OR actually going after a BMV'er? JD - can you keep us posted when you get more info?

Nigel.

Hi Nige,

I'm always looking to find ways to improve so maybe the mind reading should come next

Yes you can instruct your own valuer.  I have had a client do this successfully when negotiating with a lender to reduce their redemptions.  He simply instructed a 'red book' val and explained to the valuer that he needed a worse case figure if the property were repo'd and had to sell quick.  This was then produced to the lender to show his offer should be accepted.

Two birds with one stone!! (in some cases)

Chartered Surveyor report turns BMV to MV thus satisfying the Official Receivers investigation.

Chartered Surveyors report can be used to negotiate down secured loans prior to purchase. For further reading see Secured Loans