Property problems: Getting the best in a mortgagee sale purchase

Q: I am tendering for a building up for a mortgagee sale. It has air conditioning, carpets, partitioning and fittings of all kinds which are quite valuable and would substantially add to any potential rent achievable. But the owner has vanished or is uncooperative and no one can tell if the chattels stay or go or belong to someone else, or if there is money still owing on them. It will make a big difference to the value and the price and ultimate rental value if it is sold with all the chattels or as a bare shell. How do I protect myself when making an offer?

A: The first step is to check the terms of the tender. It is the usual practice for a mortgagee to add a clause to the conditions of sale stating that it is not selling anything other than the property secured by the mortgage. There will almost certainly be a clause excluding chattels which are not secured by the mortgage such as shelving, desks and other office equipment. Mortgages only secure the land and any buildings on the land and certain fixtures.

The second step is to search the Personal Property Securities Register (PPSR), an electronic notice board to record security interests in personal property, which was established by the Personal Property Securities Act 1999.

Anyone with a computer can obtain a PPSR search but the system will only respond accurately to a properly formatted search so it is preferable to have a solicitor undertake the search on your behalf.

If any of the items that you refer to in your question have been obtained by the owner by credit, then the creditor should have registered a Financing Statement on the PPSR. If a Financing Statement (or statements) is registered it could refer directly to a security interest held over specific goods. Equally, it could refer to a broad security interest that is held over all of the owner's property, therefore possibly including some, or all, of the goods.

Your solicitor may be able to tell what goods have a security interest held over them by looking at the Financing Statements. But it will depend on the detail provided by the creditor (referred to as the Secured Party in Financing Statements) in describing its security interest. A call to the creditor can clarify the goods they hold security over.

Following a PPSR search, and regardless of whether or not any Financing Statements were registered, you should approach the solicitors for the mortgagee with specific questions including:

1. Does the mortgagee's security extend to the goods you refer to? (You should provide a detailed list with descriptions and also provide copies of any financing statements that you have obtained from the PPSR.)

2. Will the mortgagee warrant that the successful tenderer will obtain an unencumbered interest in the goods whether or not there are any registrations on the PPSR?

3. Has the mortgagee received notice from any other person claiming any rights in the goods?

If the mortgagee is prepared to give you a warranty that you will obtain an unencumbered interest in the goods then, should any other creditor come to you at a later date with a claim, you will have recourse against the mortgagee.

If the mortgagee is not prepared to provide you with a warranty and Financing Statements have been registered, then you should contact the creditors listed. By going straight to the creditors you will get a better idea of what is owing on the goods and may be able to negotiate with the creditors or the owner to get an unencumbered interest in the goods.

If you get a warranty from the mortgagee that the goods that you require to pass to you on settlement will pass unencumbered by any other interests, or are unable to negotiate with any creditors or the owner, then you should pitch the tender at a price sufficient to replace the goods if necessary.