Keen property buyers in Victoria may have heard about the potential windfall profit from purchasing via a Sheriff sale. These auctions present a unique opportunity for buyers to acquire properties at a price potentially lower than market value.
However, there are significant risks associated with this process: these sales are governed by a very different set of laws and procedures when compared to a usual private sale on the open market involving a standard Contract of Sale and Section 32 Vendor's Disclosures — the protections afforded to and obligations required from purchasers in a Sheriff’s sale can therefore be significantly different to those in a standard sale. Importantly, Sheriff sales do not operate under the Sale of Land Act 1962.
Understanding and carefully considering the procedures and associated risks is crucial for anyone looking to purchase property through a Sheriff sale. Read on to find out how a member of our Property Law team can help you secure the best outcomes in these transactions.
Risks for Purchasers
1. Unclear Title:
One of the most significant risks is that the property is likely to have unclear title. Properties sold at Sheriff sales may have existing mortgages, charges, liens, or claims that are not extinguished by the sale. Buyers are at risk of taking over the responsibility for these encumbrances, which can lead to further legal disputes and costs.
Further, the buyer will be obligated to pay outstanding debts and arrears for Council Rates, Water Authority rates and charges, Owners Corporation fees, outstanding special levies, Land Tax, and other charges accrued on the property. These amounts can be significant and cost the buyer tens of thousands in unexpected acquisition costs.
2. Property Condition and Limited Access:
Properties sold at Sheriff sales are typically sold ‘as is’. The buyer does not have the protection of warranties from the seller under a normal sale. This means the property is purchased subject to any structural defects, damage, or other issues that might not be immediately apparent.
Additionally, inspecting the property beforehand is often not possible, which greatly increases the risk of unforeseen problems. Buyers are therefore at risk of overpaying for a problematic asset when significant costs will be incurred for repairs, compliance, defects, and legal issues.
3. Lack of Disclosure:
At a Sheriff’s auction, there is no obligation to disclose property defects or issues. Significantly, the Sheriff is not obligated to and does not always provide the Certificate of Title to the buyer. The Certificate of Title is required to enable the Land Titles Office to register the property into the buyer’s name. If the owner is non-compliant, missing, or if a bank holds the title, the buyer may encounter substantial difficulty in obtaining the Title.
This lack of availability of standard transfer documents and procedures means substantial legal proceedings may be required against the owner, the bank, or other parties to enable the property to be registered into the buyer’s name. Strict timelines also apply to when a buyer can lodge a transfer, making it extremely important to ensure you can comply with legal time frames — including ensuring that you can obtain legal advice and commence proceedings if needed — to protect your interest in the property purchased via a Sheriff’s Auction.
4. Potential for Legal Disputes:
The Sheriff sale process can be contested by the debtor or other interested parties, leading to legal disputes. This can include difficulties evicting existing occupants of the property. Buyers may be drawn into litigation, incurring additional legal costs and delays in obtaining possession and legal title over the property.
5. Financing Difficulties:
Lenders may be reluctant to finance properties sold via Sheriff auctions based on the risks outlined above. This means buyers will need to have substantial cash reserves or alternative financing arrangements.
Mitigating Risks for Buyers
If you do decide to purchase property at a Sheriff’s sale, the following steps may help you to reduce the risk and damage of unforeseen issues.
1. Conduct thorough due diligence:
This includes researching the property's title history, outstanding debts and charges, and any legal disputes.
We recommend consulting with our Property Law team prior to Auction so you are aware of the potential risks and the process overall.
2. Budget additional costs:
Setting aside funds for unexpected issues can help mitigate financial strain and ensure the property's long-term viability.
3. Understand the auction process:
Buyers should be aware of bidding procedures, payment requirements, timeline, and any contingencies that may affect the sale.
4. Consider professional assistance:
Buyers should consider engaging professionals, such as pest and building inspectors, surveyors, and a property lawyer who can provide valuable assistance and expertise.
Purchasing property through Sheriff sales in Victoria can offer a unique and valuable opportunity but comes with substantial risks. Buyers must be diligent in understanding the procedures and potential pitfalls associated with these auctions.
Legal advice and careful planning are paramount in navigating the complexities of Sheriff sales, protecting the interests of buyers, and ensuring a smooth transaction.
Our team of Property lawyers can help you get the most out of a Sheriff’s sale, by advising you on due diligence and property transfer processes, amongst many other protective and effective legal steps.
Get in touch with a member of our team to find out more.
How can I learn more?
Kelly Brown.
Associate.
- Property and Wills & Estates
- 03 9890 3321
- Email Address: k.brown@robinsongill.com.au
Serena Ding.
Principal.
- Property, Business & Public Notary
- 03 9890 3321
- Email Address: s.ding@robinsongill.com.au
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