What do you need to check before buying a property?

Buying a property is often one of the most significant transactions in a person’s life. Nevertheless, buyers are often influenced by a good location, an attractive price or the fear that another buyer may acquire the property.

Legal due diligence, however, should precede paying a reservation fee, advance payment or contractual deposit and the signing of a preliminary contract. A beautiful flat may turn out to be mortgaged, partly owned by someone else, unlawfully altered or the subject of a court dispute. Some of these problems may be remedied, but others call into question the very possibility of the buyer acquiring secure title. An estate agent’s role differs from that of the buyer’s lawyer. Assistance with finding and negotiating a property does not replace independent legal due diligence.

Is the seller’s notarial deed sufficient?

No.

The notarial deed is the initial, but not the only, part of the check. It is necessary to establish not only whether the seller holds a title document, but also whether the person from whom the seller acquired the property was actually the owner.

The review should trace the chain of title. Depending on the case, the following are reviewed:

• previous notarial deeds;
• partition agreements;
• court judgments;
• certificates of heirs;
• wills;
• deeds of gift;
• state or municipal property deeds;
• restitution decisions;
• other documents from which the seller’s rights derive.

The aim is to trace an unbroken and legally sound chain of title. If any previous transaction is invalid or was carried out by a non-owner, the problem may also affect the subsequent buyer.

1. Checking who the actual owner is

The first question is whether the seller owns the entire property and has the right to dispose of it independently.

Particular attention is necessary when the property is:

• acquired by inheritance;
• held in co-ownership;
• acquired during a marriage;
• received as a gift;
• restored under restitution legislation;
• acquired by prescription;
• owned by a company;
• being sold through an authorised representative acting under a power of attorney.

In the case of inherited property, all the heirs should be identified, not only the persons who actually use the property. The certificate of heirs should be compared with the title documents and, where necessary, with the civil status records.

If the property was acquired during a marriage, the matrimonial property regime applicable between the spouses should be checked. The fact that only one spouse is named in the notarial deed does not necessarily mean that this spouse is the sole owner.

Where the seller acts through an authorised representative, the scope of the representative authority and the form and content of the power of attorney should be carefully checked, as well as whether it has been revoked. Transactions through an authorised representative require heightened attention because of the risk of abuse or of the use of a forged document.

2. Checking for mortgages, attachments and other encumbrances

Before the purchase, a search should be carried out in the Property Register kept by the Registry Agency. It may show the existence of:

• contractual or statutory mortgages;
• attachments of real property;
• registered statements of claim (lis pendens);
• a right of use (usufruct);
• easements;
• registered leases;
• third-party rights;
• enforcement that has already commenced;
• other instruments that may affect ownership.

The certificate of encumbrances should cover a sufficiently long period and be issued for exactly the same property. The Registry Agency points out that a certificate for a given period reflects the entries, annotations and deletions made precisely within the specified time frame. A period that is too short may therefore not show earlier matters. Searches and certificates may be requested through the Property Register portal.

It is not enough merely to obtain the certificate. The instruments recorded in it should be reviewed and analysed. A registered statement of claim, for example, may mean that a third party disputes the ownership, and a right of use may prevent the buyer from using the property even after the transaction.

The authenticity of an issued certificate of encumbrances may be verified online using its unique code on the website of the Registry Agency.

Can a mortgaged property be bought?

Yes, but the transaction should be carefully organised.

A mortgage is not discharged automatically upon sale. It follows the property, and the mortgagee may enforce against the property even though it has already been acquired by another owner.

Written information is usually requested from the bank about the amount of the debt and the conditions on which it will consent to the discharge of the mortgage. The payment may be structured so that part of the price is paid directly into the creditor’s account. The specific mechanism should be set out in the preliminary contract and agreed with the bank before completion.

An oral assurance that the mortgage “will be discharged after the sale” does not provide the buyer with sufficient protection.

3. Checking the cadastral data

The title document should be compared with the current sketch or diagram from the Geodesy, Cartography and Cadastre Agency.

The following are checked:

• the cadastral identifier;
• the address;
• the area;
• the floor;
• the designated use of the unit;
• the boundaries and neighbours;
• the undivided shares in the common parts and the land;
• the details of the owners.

For a disposition in an area with an approved cadastral map, a sketch of the land plot or building, or a diagram of the self-contained unit, as the case may be, is required.

A discrepancy between the notarial deed, the actual situation and the cadastral diagram should not be overlooked. It may be due to a technical error, but it may also indicate an alteration that has not been regularised, the annexation of a common part or a boundary dispute.

The cadastral map has important practical significance, but in itself it neither creates nor conclusively proves title. For this reason, the cadastral check does not replace the analysis of the title documents.

4. Checking the area and ancillary premises

The area stated in the advertisement does not always match the area in the documents. The quoted square metres may include common parts, terraces or other spaces that the buyer perceives as part of the home.

The following should be established separately:

• the built-up area of the flat;
• the percentage and area of the common parts;
• the existence of a cellar, attic or storeroom;
• the right to a parking space or garage;
• the undivided shares in the land plot.

Parking spaces require particular attention. They do not always constitute separate items of real property. The buyer’s right may derive from ownership of a garage, an undivided share in land or a building, an allocation of use or another legal mechanism. The wording “flat with a parking space” is not sufficient to determine what right is actually being acquired.

5. Checking the building documents

When buying a house, a new-build property or a flat that has been altered, the lawfulness of the building and of the specific unit should be checked.

Depending on the type and stage of construction, the following may be required:

• a design brief issued by the competent authority (виза за проектиране), specifying the applicable planning parameters;
• an approved building design (investment project);
• a building permit;
• a protocol for opening the construction site;
• a certificate of acceptance of the structure, known as Act 14;
• a statement of findings establishing that the construction is fit for acceptance – Act 15;
• a use permit or a certificate of commissioning;
• a certificate confirming the building’s tolerated status under Bulgarian planning law;
• building documents for alterations that have been carried out.

It should be checked whether the actual layout corresponds to the approved design. Removed walls, terraces incorporated into the living space, annexed corridors, relocated sanitary facilities or merged units may turn out to be unlawful.

The existence of separate utility accounts for electricity and water does not prove that the building is lawful or has been duly commissioned.

6. Checking the designated use of the property

The buyer should establish not only what the unit looks like, but also what its official designated use is.

A unit advertised as a “flat” may, according to the documents, be an atelier, an office, a consulting room, a storeroom or another unit designated for non-residential use. This may be relevant to:

• the possibility of using it as a dwelling;
• address registration;
• bank financing;
• tax treatment;
• a future sale;
• running costs;
• the requirements for a change of use.

The designated use is checked both in the cadastral diagram and in the building documents. Any discrepancy between them should be clarified before the transaction is concluded.

7. Checking the development plans and access to the property

When buying a house, a plot or agricultural land, the planning status of the property should be checked.

The following are relevant:

• the detailed development plan in force;
• the designated use of the area;
• the permitted development parameters;
• the existence of unsettled regulation accounts;
• planned streets or expropriation measures;
• building restrictions;
• easements;
• protected areas and zones;
• access to a public road;
• the possibility of connection to electricity, water and sewerage, and other infrastructure.

The physical presence of a path or road does not necessarily mean that the property has legally secured access. A private road, passage through a neighbouring property or the absence of an implemented street regulation plan may create serious difficulties.

8. Checking for court disputes and enforcement proceedings

The property may be the subject of a dispute without the buyer learning of it from the seller’s explanations alone.

Checks should be made for the existence of:

• cases concerning ownership;
• judicial partition proceedings;
• disputes between heirs;
• actions for rescission or annulment of a previous transaction;
• claims to a reserved share of an inheritance;
• enforcement;
• insolvency proceedings, where the seller is a trader;
• other proceedings that may affect the property.

A registered statement of claim usually appears in the Property Register, but legal due diligence should not be mechanically reduced to the certificate of encumbrances alone. Depending on the case, additional searches concerning the seller and previous owners may be needed.

9. Checking the liabilities relating to the property

Before the transaction, an up-to-date tax valuation should be requested, and it should be checked whether the requirements for payment of the local taxes relating to the transfer have been met.

In the case of a flat, it is also sensible to check outstanding obligations and management matters affecting the jointly owned building:

• whether there are unpaid fees;
• whether there are decisions on forthcoming repairs;
• whether debts to suppliers have accumulated;
• whether any court disputes are pending;
• whether significant additional contributions have been approved;
• how the common parts are used.

It is useful to request the minutes of the most recent general meetings of the owners and a written statement from the building manager.

Separately, the utility accounts for electricity, water, heating and other services may be checked. Not every liability of the seller passes to the buyer, but unsettled accounts may lead to practical difficulties after the acquisition.

10. Checking the seller’s marital status

Marital status is material where the property was acquired during a marriage or is used as the family home.

It is necessary to establish:

• when and on what basis the property was acquired;
• whether the seller was married at that time;
• which matrimonial property regime applied;
• whether the property falls within the matrimonial community of property;
• whether the participation or consent of the spouse is required;
• whether a marriage contract has been concluded.

The existence of a marriage contract or a regime of separation of property should not be assumed, but should be checked in the relevant register and through the pertinent documents.

11. Checking the seller

Legal risk does not always stem from the property itself. Sometimes it is connected with the seller’s situation.

Depending on the specific case, it may be necessary to check:

• the seller’s identity and legal capacity;
• the existence of representative authority;
• whether the seller has been placed under guardianship;
• whether the seller is subject to insolvency proceedings;
• whether enforcement is being pursued against the seller;
• whether the selling company exists and is duly represented;
• whether the transaction requires a decision of a corporate body;
• whether there is a risk that the transaction may prejudice creditors.

Where the price is unusually low or the seller insists on urgent payment in cash, this is grounds for an additional check, not a reason for it to be omitted.

12. The preliminary contract should protect the buyer

The preliminary contract is not a formality. It sets out the terms on which the parties will proceed to completion and may create serious obligations even before ownership is transferred.

A well-drafted preliminary contract should provide for at least:

• a precise description of the property;
• the sale price;
• the method of payment and the payment deadlines;
• the amount and nature of the sum handed over;
• the deadline for completion;
• the documents that the seller must produce;
• the obligation to transfer the property free of encumbrances;
• the manner in which an existing mortgage is to be discharged;
• the consequences if a legal or construction problem is discovered;
• liability for non-performance;
• the conditions for the return of amounts paid;
• the time of handover of possession;
• the allocation of taxes, fees and costs.

It is particularly important to distinguish between an advance payment and earnest money. The label “deposit” (kaparo) in itself does not always make clear what the consequences of withdrawing from the transaction are. These should be expressly set out in the contract.

A preliminary contract should not be signed, nor should a reservation fee be paid, before at least an initial check of title and encumbrances has been carried out.

13. Checking the method of payment

The transaction price must be stated truthfully and clearly. Entering a lower price in the notarial deed in order to reduce costs creates a serious risk for the buyer. If the transaction is subsequently declared invalid or rescinded, proving the amount actually paid may be difficult.

It is advisable for payments to be made in a traceable manner, with the purpose of payment precisely stated. In the case of a bank loan, the following should be agreed in advance:

• the conditions for releasing the funds;
• the drawdown period;
• the bank’s requirements;
• the creation of a mortgage;
• the procedure for payment to the seller or to a creditor of the seller.

The buyer’s approval for a loan does not constitute a legal guarantee that the property is risk-free. The bank checks the property with a view to its own security and does not assume an obligation to protect all of the buyer’s interests.

14. Re-checking immediately before the transaction

Even if the initial check reveals no problems, some of the searches should be updated before the notarial deed is signed.

Between the preliminary contract and the final contract, a new mortgage, attachment, statement of claim or other encumbrance may be registered. The Property Register search should therefore be repeated as close to the transaction as possible.

After the deed has been executed before the notary, its registration should also be followed up. Signing before a notary and registration are separate stages, and the buyer’s protection requires the transaction to be duly recorded in the Property Register.

Is a check by the notary or the estate agent sufficient?

The notary carries out the checks provided for by law and certifies the transaction, but does not replace the buyer’s lawyer. The notary is an impartial person and does not represent the interests of only one of the parties.

The estate agent may assist with finding a property, arranging viewings and communication between the parties. Legal due diligence, however, requires an analysis of ownership, encumbrances, building documents and contractual risks.

The buyer’s lawyer has a different role: to identify the specific risks, to propose a way of limiting them and to negotiate terms that protect the buyer specifically.

When should you consult a lawyer?

The most appropriate time is before paying a deposit, a reservation fee or any other sum, and before signing a preliminary contract.

Legal assistance after a dispute has arisen is also possible, but by then some of the risks have already materialised. An advance check is usually considerably quicker and less costly than court proceedings to recover a price paid or to protect ownership.

If you are about to buy a property, we can carry out legal due diligence on title and encumbrances, review or draft the preliminary contract and assist in preparing for completion.