Distressed property sales often involve higher levels of risk and uncertainty than standard arms' length property transactions. Whilst there is value in these opportunities, risks need to be properly considered and managed.

1. What are distressed property sales?

When we refer to a 'distressed sale', we mean situations where a lender is exercising it right to sell a secured property.

This may be where a property is on the brink of repossession and is being sold by order of the lender. It can also include situations where a lender has actually repossessed a property and/or appointed receivers or liquidators to manage a sales process.

2. What are the challenges in distressed sales?

Buyers acquiring properties through a distressed sale often face the following risks and challenges:

Unreliable information: Those responsible for managing a sale, such a receivers, often have limited or no knowledge of the property, meaning any information provided may be incomplete or unreliable. 

No recourse: "Seller" warranties are often unavailable, extremely limited or worthless, leaving buyers with little to no recourse if future issues arise.

Time Pressure: Tight deadlines may leave insufficient time to resolve known title and land use related issues identified during due diligence, increasing the likelihood of buyers inheriting unresolved risks. 

In addition to the above, lenders (and those selling on behalf of lenders) face the following set of challenges that need to be navigated:

Maximising Sale Proceeds: There is pressure to achieve the highest possible sale price as quickly as possible.

Attracting Buyers: The lack of detailed property knowledge and reluctance to offer financial guarantees can make the property less appealing to potential buyers.

3. How can Title Insurance help?

A Warranty Replacement Tool: In situations where warranties are unreliable or unavailable, a set of insured events can serve as a warranty replacement tool, covering legal risks that impact ownership and/or use of the property. This can help provide buyers with peace of mind, knowing that they have recourse under an insurance policy for these insured events if problems arise post purchase.

Facilitating the Sale Process: Mitigating uncertainties around title risks can help expedite the sales process and potentially lead to higher sale prices.

Confidence to Proceed: Tight deadlines often leave little time to investigate or resolve title issues. Title Insurance can look to cover known title risks identified during due diligence, giving buyers the confidence to move forward with the transaction.

Supporting Lenders and Financing: By reducing certain title risks, Title Insurance enhances the attractiveness of distressed properties to lenders and investors, helping buyers secure financing.