For sellers

Mortgaged Bulgarian properties – Are they hard to resell?

27 November 13

There is a great deal of choice in the Bulgarian property market at the moment, perhaps 5-10% of all vendors are successfully selling. Many of those who do not sell are indeed asking for more than the market offers, however there are many who ask for exactly what can be achieved but still fail to complete a sale due to the mortgage on their property and the Russian fear of it.


So what is the issue there? Surely it doesn’t matter to a buyer if the vendor has a mortgage or not, it can’t be their concern can it?


Well, firstly it is should be noted that Russian culture is not typically familiar with the concept of mortgage loans to enable ownership, most own their homes without loans and it is not commonplace to discuss this financial product amongst friends and family as we in the UK and Ireland do so openly. A lack of trust in ‘the system’ leans towards a culture of disbelief in anything that is not entirely owned outright, any dependence on third parties such as banks or contracts is assumed dubious and immediately avoided. Unfortunately, Russian citizens tends to steer away from properties backed by institutions as recent history has forced them to learn the hard way that institutions can quickly vanish along with the value of their possessions and agreements.


The end result is that in this market where Russians and soviet culture preside as the extremely dominant buying demand, their way of thinking prevails almost unequivocally. It does not mean that you cannot sell your mortgaged property, it simply means the chances are stacked against you and you need to find a buyer willing to consider the legal technicalities to learn that they are secure and safe in their part of the transaction. In a buyer’s market which is already tough enough to sell in this doesn’t help, we often see mortgaged vendors have 2 or 3 offers from real buyers pay deposits and then retract once they have considered the implications of an existing mortgage, very frustrating for both vendors and agents.


So if they are secure why do they pull out?


The complications arise when the buyers study the details of the conveyancing process. In effect, buyers have to first pay for the property, then these funds are sent to the lending bank to clear the mortgage, then the bank has to remove their name from the national mortgage registry and thus its declared interest in the property. This can take 2-3 weeks and like any institution they cannot be easily hurried. During this time the buyer has paid for a property, which technically still has a mortgage on it according to the registry and thus is not entirely theirs. This naturally seems risky to buyers and they retract.


The situation can become even more complicated when buyers purchase a property that is in negative equity and the sale value is less than the mortgage balance. In this circumstance the buyer is entirely reliant on the vendor paying the difference, which is difficult for agents to satisfactorily explain beyond simply asking them to trust the parties involved, yet having not met them its not unreasonable when they say no.


In addition to all of the above, under some conditions buyers have paid for the property, the bank has received the full balance and cancels their registered interest in the property, but then the vendor extracts from the sale effectively having had their mortgage paid off by someone else’s money whilst the property is still in their name. Of course this is theft and fraud, it is against all the terms of the sales contracts etc, but it has happened and it only takes a few such cases to plague the marketplace with negative stories of buying mortgaged properties. The fear has set in and this type of misinformation is hard to set straight.


So can I actually sell my mortgaged property?


Yes you can, there are still buyers for you, they are just not the majority. It is simply that from a buyer’s perspective, with all of the above considered, in a buyer’s market where there is so much choice and so many similar or identical options to purchase which have clear title without any mortgage or bank involved, it is no wonder that most of the time buyers pull out and walk away from such purchases. However, all is not lost, NewEstate continues to successfully sell a healthy number of mortgaged properties and continues to support vendors who offer them, for sure they can all still be sold with sufficient time and marketing exposure. The solution is really to find a buyer with sufficient willingness to look into the details of their legal position and enough trust in us and our reputation to be confident that we are not setting a trap. This isn’t every buyer, as such if you are offering a mortgaged property to the market, keep in mind the complexities it can create from a sales and conveyancing point of view.