Buyers warned to be wary of bargains

Chris Moore, president of the Law Society's Auckland branch. Photo / Supplied

Imagine buying a motel in a mortgagee sale only to find you didn't own the beds, televisions and other fittings.

Chris Moore, president of the Law Society's Auckland branch, says he has heard of at least one prospective motel owner who found himself in that situation.

While the financial crisis may have thrown up some bargain-basement investment opportunities, Moore is warning people to be aware of the risks involved in buying a business that has gone belly up. He said those getting involved in mortgagee sales of businesses should do careful due diligence to ensure the bank held security over all assets.

Third parties, such as finance companies, sometimes held security over items the bank appeared to own.

Moore said buyers should engage the services of a lawyer to avoid getting into the situation faced by the bedless motel owner. Lawyers could check the Personal Property Securities Register to determine who owned assets. The public can check the register online.

Moore said it was also not unheard-of for disgruntled former owners of businesses to cause damage to sites - out of spite - in the leadup to a mortgagee sale. He said there was little that could be done about such wilful damage.

Civil proceedings were unlikely be worthwhile if the defendant had no money.

The law society is also advising prospective buyers to do extensive due diligence to determine whether key business contracts would survive the transfer of assets to a new owner.