Risks when buying property

When speaking of risks, people usually mean outright deception, fraud on the part of the buyer. However, unpleasant consequences are also possible in ordinary transactions.

Risks in the use of powers of attorney

Because notaries can verify the identity documents of the parties to a transaction, forged documents are now rarely used. Since the introduction of a special register of powers of attorney and wills, where any notary can quickly obtain a certificate confirming whether documents were in fact notarised, the scope for using forged powers of attorney has also been limited. At the same time, the content of a power of attorney and the extent of the authority of the seller’s or buyer’s representative cannot be verified, and consequently these factors may give rise to problems in the future.

For example, lawyers do not agree on whether it is sufficient for the document to grant the attorney the right to dispose of a specific piece of real estate, or whether the essential details of the transaction, such as the price of the property, must necessarily be stated. Case law contains examples of differing decisions on such questions, so it is better to err on the side of caution, analyse the text of the power of attorney in advance and insist that all the details be stated in the document. In that case the risk that the transaction may later be challenged in court because the attorney lacked the necessary authority is reduced.

On the other hand, even if the power of attorney is drawn up properly and states all the details, there remains the danger that the principal has already revoked the document. It is also possible that the power of attorney has been declared invalid because the principal was not aware of his actions when executing it. In such a situation the buyer cannot become the owner of the property. Nevertheless, if for 5 years no one applies to the court and declares the transaction invalid, the buyer need no longer worry that his rights will be challenged.

Checking ownership

For a transaction to take place, the seller must be the owner of the property. In Bulgaria it is commonly assumed that if a person holds a notarial deed bearing his name, then he is the owner. However, this is not always the case. The transaction described in the notarial deed may have been declared invalid or annulled by a court – in that case the person named in the document is not the owner.

In a property transaction it is essential to check whether the property really belongs to the seller. This can be done in the Property Register (Имотния регистър) of the Registry Agency, where, using the property number, all entries concerning it can be traced and the current owner identified.

Buying from a legal entity

Foreigners often register houses in the name of a company, and Bulgarian citizens may do the same. When buying such property it is necessary to check not only the very existence of the company, but also whether bankruptcy or liquidation proceedings have been commenced against it. In such situations the transaction is possible, but a number of circumstances need to be checked, for example, at what stage the proceedings are, whether the seller is a fully authorised representative of the company, whether the property was acquired during a period in which transactions are deemed invalid, and so on.

Whether a company is bankrupt can be checked in the Commercial Register, but it is better to request the corresponding certificate from the selling company. The point is that such a certificate contains the most up-to-date information, including cases where an application to declare the company bankrupt has been filed but no decision on it has yet been taken. It should be borne in mind that if a company is in the process of being declared bankrupt, its creditors may declare transactions from several years back invalid if they prove that these were concluded on extremely unfavourable terms. This is not difficult to do, given the widespread practice of stating a minimum property value in the notarial deed in order to reduce tax and other costs.

Sale of spouses’ property

If one spouse sells property without the participation of the other, this transaction carries a potential risk. A notary can check the seller’s marital status in the civil status records system, but it is better to carry out the check in advance and, possibly, ask the seller to provide a certificate of his marital status, as well as of the regime of property relations between the spouses. The buyer can also check independently whether the seller is the sole owner of the property or whether both spouses must take part in the sale. But even if the seller is the sole owner, he has no right to sell property that has the status of “family home” without the consent of the spouse.

Sale of property by a seller who has debts

Another risk is connected with the seller having debts. If at the time of the transaction he has large unpaid liabilities to the state (for example, in respect of taxes or social security contributions), there is a possibility that the transaction will be declared invalid by a court. For instance, this may happen if the state authorities cannot recover the debts by other means and plan to seize the debtor’s property.

To avoid this risk, before the purchase it is worth requesting from the seller a certificate confirming the absence of liabilities to the state – an “Удостоверение по чл. 87 от ДОПК”. Although before concluding the transaction the seller signs a declaration that he has no liabilities to the state, such a document cannot always be trusted. The notary, for his part, has no access to the database and cannot check whether the seller is a debtor.

Sale at a price that differs from the one stated in the document

Often, when a transaction is executed, the notarial deed states not the real but an understated price of the property. This is done to save on taxes and fees, but it may later become a source of problems. Thus, if the transaction is subsequently challenged in court, the buyer can claim only the return of the sum stated in the contract, not the real one.

Sometimes the difference between the real price and the one stated in the contract is entered in the notarial deed as a penalty in the event of judicial seizure of the property, but even in that situation there is a certain risk. For example, the court may consider the penalty too large and reduce it (especially where the transaction is between private individuals). For this reason the safest option is to enter the real purchase price in the documents.

Risks when buying mortgaged property

One of the main stages of checking a property before purchase is checking with the Registry Agency whether there are any encumbrances. This can be done online or – the best option – by filing an application for a certificate of encumbrances. Such a certificate makes it possible to trace the history of the property and find out its current legal status.

Usually, where there are encumbrances, the buyer withdraws from the purchase. Nevertheless, the sale of mortgaged property is possible if the bank has not initiated public sale proceedings. In this case the seller undertakes to repay the mortgage with the money received. The main risk is that the seller will fail to do so and, as a result, the buyer will end up as the owner of a property that may be put up for auction at any moment. To avoid such a development, it is worth setting out the debt repayment procedure in detail in the preliminary contract or the notarial deed, providing for penalties for failure to perform the obligations. In addition, the buyer must be certain that the money from the sale will be sufficient to repay both the principal amount of the debt and the interest, late payment penalties, commissions and other payments. It is advisable to request from the bank that granted the mortgage a letter of guarantee stating the full amount required to repay the debt. This amount must be transferred directly to the account of the creditor (the bank), and not to the account of the seller, who may deliberately or for objective reasons (for example, because of a seizure of the account) fail to settle with the bank. It is best to agree with the bank that the money for the transaction will be transferred to a special account (ESCROW) opened on the basis of a tripartite agreement between the bank, the seller and the buyer. It should be taken into account that opening such an account involves a large commission, which is usually paid by the buyer.

Risks when buying donated property

If the seller received the property as a gift, there is a risk that the donor will change his mind and file a claim in court to revoke the donation. If the claim is filed before the property is transferred to the buyer, then, should the court rule in the donor’s favour, the property will become the donor’s, even if the sale has already taken place. If, however, the claim is not filed, then even if the donation is revoked, the buyer will remain the owner of the house or apartment he has acquired. Thus, a certificate of encumbrances must be requested immediately before concluding the transaction.

Risks when buying at public auction

It is believed that in this case there are no risks, but this is not entirely so. The bailiff must verify the title to the property and bears responsibility for this. At the same time, he is not obliged, when selling, to announce the existence of possible restrictions on the rights of use, construction, etc. For maximum certainty the buyer should check the property himself before taking part in the auction.

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