Fundamentals of Freehold Transactions Flashcards
What is caveat emptor?
This means that, in general, a buyer takes the property as they find it. They can withdraw at any point up to exchange of contracts. After exchange, however, they cannot withdraw because they subsequently find a problem with the property.
The seller is generally under no obligation to give the buyer all the relevant information that the buyer may require. It is the buyer’s solicitor’s job to investigate as thoroughly as possible and report to the buyer.
What are the exceptions to caveat emptor?
Finding out information about the property:
Investigating title and raising pre-contract searches and enquiries
What sort of information about the property qualifies as an exemption?
Information about the property will come from:
1) The title to the property – the Land Registry official copies (if registered) or the deeds (if not).
2) The seller’s replies to enquiries (whether standard enquiries or the buyer’s solicitor’s own specific enquiries).
3) Searches (requests for information) from various bodies such as the local authority, the Land Registry and statutory undertakers (eg, water and drainage supply companies).
4) A survey of the property. The surveyor will inspect the property and report on value, structural defects and necessary repairs. They may also flag issues for further investigation by the solicitor (such as physical evidence of rights of way or boundary discrepancies).
(1) Misrepresentation
(2) Latent encumbrances (readily discoverable upon inspection) and title defects
What are the main types of residential mortgage?
Capital repayment mortgage – the borrower repays the capital sum by monthly payments, together with an interest amount added each month. At the end of the term (say 25 years), the loan has been paid off in full.
Interest only mortgage – the borrower only pays the interest on the loan. This means the borrower pays less per month, but the disadvantage is that the capital remains outstanding, no matter how long the loan is in place. The capital will generally only be repaid by the sale of the property. The borrower may, still, however, end up better off as they will have the “equity”, ie, the value of the property (hopefully higher) that is not required for the mortgage.
Endowment mortgage – in general, these are no longer available in the UK, but you may come across endowment mortgages that clients have taken out in the past. They are interest only mortgages, topped up with a payment that is invested in an endowment policy. The idea is that the policy repays the capital at the end of the term. Unfortunately, many have not performed as expected, leaving borrowers with a shortfall to make up out of their own cash.
