We went to sign the preliminary contract at the notery’s office. While we had some issues with the procedure on how to complete the deal, we managed to resolve them so that everyone is relatively safe until the completion.

The complexity comes from the fact that the plot was mortgaged by a bank and we wanted to take some money from the bank as well to complete the deal. However our bank didn’t want to release the money in our account before the deal is complete… But how to complete the deal without having the money to pay for it?

The solution was found between all parties and as we were getting ready to sign, the notery found that the previous owner of the plot is bankrupt. She advised us that taking into account the current state of the bankruptcy law in Bulgaria, the creditors of the previous owner can still come forward and claim the deal void, leaving us with lots of debts and no property.

Although, she wasn’t 100% sure about this part of the law and after making few consultations with bankruptcy lawyers, she still insisted its very risky to go forward before extensive consultation with lawyers.

And so we got our deposit back, but still need to go and check this out with those that know more about this part of the law. However… its looking less likely this can ever be resolved by the minute.

So here is the scheme we got ourselves into:

Company A is bankrupt. They are the previous owners of the plot. At some point in time they sell (transfer) the property to Company B.

Now Company B is trying to sell the plot, and thats where we come in.

“Bancrupt rule” – an interesting article (in Bulgarian, translation by Google), from Capital, conveniently published this weekend, about the abuse of the insolvency date.

The first problem comes from the difference between the date on which the bankruptcy was declared and the actual beginning of that period. It seems like in the Bulgarian law those two can be different and quite far apart.

If I’m a company now and declare myself bankrupt, I can claim that this state actually occurred five or ten or more years ago. And at this point, completely legitimately, I can ask for all my money back from all people and companies I dealt with since that date that was far in the past.

The second problem is that because Company A and Company B on that deal, where the plot ownership was transferred, were represented by the same person – Ms Doe from Company A sells to herself but representing Company B.

Third problem – the value of the deal was (allegedly) times below the market value of the plot.

There are a lot of questions how does all this relate to us and can any of this hurt us and I don’t know myself, but we will know soon enough.

One thing is for sure – it smells and we’d be stupid not to verify.

Yesterday, it was Friday 21st October. Our appointment at the notary office was at 2.30 pm to sign the preliminary contract on the best plot we’ve seen so far.

Our agent and we were running around all week to make this deal happen. We jumped through a lot of hoops to arrive at the meeting to sign the preliminary contract ready – full due diligence on the seller as it was a company – and full due diligence on the plot.

Our legal consultants and agents were telling us that this deal has been the most complicated they have ever seen. Pretty much the whole spectrum of property law practice was reflected in this case, they said.

At the last moment, it turned out that the company owning the plot is connected to another one who went bankrupt, and that exposes us to a considerable risk of having the property repossessed by creditors of the previous owner.

We need to go back and do more consultation with bankruptcy specialist layers but its not looking good so far…

Pity, because we really thought that this is the one.

The Bulgarian property market is a roller coaster!

After our realisation that it will be impossible to buy what we really wanted, we decided to move on to the ‘acceptable compromise’ solution.

And that was to search for a bigger flat while we grow up enough to afford a house and a garden. Of course, when I say bigger I meant something approximately 100 sq.m. living space.

Remember the difference between living space and space by paper, which include the common parts, problem from the previous post?

Yes, turned out quite tough to find for few reasons:

• first, because all flats are listed on the biggest square meterage, which is also the expected area on which the price is (allegedly) based.
  So you look at 100 sq.m. flats that look tiny and stuffy and turn out to be actually not more than 80 sq.m., of which maybe not more than 65 is an actual living space (excluding coridors, bathroom and terrace space).
• secondly, because due to the market specifics, there are really not so many big flats on the market. The majority of the properties are small by design with kitchen planned to be in the living room.
  This is what the market demands created few years ago – thousands of newly built blocks of flats with tiny boxes in there.
• thirdly, if you want slightly more spacious flat, you should look at the old (communist style) panel blocks, but that comes with the added feature of getting to hear almost everything your neighbour does (including in the bathroom).. yes in the bedroom too..
  Since we are currently living in similar place, Philip said he would rather avoid it for our next home, so we stroke those off the list.
• finally, but very important to mention, the building boom in Bulgaria from before the world crisis left an enormous amount of all those properties unfinished. You have to be very careful what you are buying. In order to be legal (and safe) for habitation the building needs Act 16, which is a document that officially validates the completion of the building. Without it the property is not legal, technically is not even a property.
  You’d be surprised how many of those are on the market, waiting for their naive new owners.

Flat after flat, box after box… neither is even close to OK.

Going through the listings was a daily task now, and not a happy one, since we were only looking for a compromise.

I would always spend some time to make a quick search on the house properties, driving myself crazy about prices – are these people crazy?

But one day, I found an ad for a property part of a closed complex of 5 row houses, approximately 180 sq.m., almost no common parts and well planned space. It was like a 3-4 bedroom flat stacked on 5 levels. Very intrigued, I called the agent to enquire about it.

The announced price was €128 000, and according to the agent the owner is very open to flexible payment schemes. Of course as the images on the ad suggested, the property was not yet complete, but we decided we want to see it anyway.

It was very close to where we live, have a beautiful view towards German and the mountain, and yes… it was at quite rough stage. I think they said they only put the roof on, but estimated it will be completed by May 2011 (this event happened in January 2011). The owner showed us around and reiterated that stage payments are acceptable solution.

We were very excited after the viewing. We went back home and reviewed our finances, came up with bargaining plan and went ahead to place an offer.

I didn’t sleep very well that weekend (the viewing was on Friday) – is it possible to have your dream property on this price?

The bargaining was done and we ended up negotiating a price that was €9 000 less than the original offer, with stage payments and with an option to reduce the price in case of faster payments.

It was time for the lawyer to come in.

After we started living together, we realised we needed much more space for the family and started looking for flats in Sofia. Unfortunately, this turned out a difficult task because of our requirement for space.

The real estate market in Sofia is currently in its lowest. There is more properties on the market than there is demand for. Unfortunately the modern and new buildings that were complete (because there are plenty incomplete and unaproved for inhabitation) were designed for the average Bulgarian’s low budget and low living space requirement ( i.e. lower costs).

We went through a (hell of a) lot of viewings, only to discover that whatever we do it will be a compromise. The search was also limited by our requirement to look in areas reasonably near to where we currently reside.

At that time we didn’t event know what we want – or rather we didn’t realise…

That happened a little later, when Philip noticed an ad for apartments in Simeonovo, suggesting that they had some very reasonably priced flats. Reading the at the ad again together, we were very excited, it looked beautiful, spacious, well-maintained and planned.

We arranged a meeting with an estate agent from Colliers; a very nice young lady who met us one day in a cold Sunday in late November 2010 in a development called Sofia Sky - a closed-type ‘gated’ complex, consisting of apartment blocks, row houses and a few detached houses.

This viewing opened our eyes as to how things could be – and opened our minds to dream and imagine. Of course that was all shattered when we got to the point with the price discussion and the reality hit us.

The row houses were priced 290k – 320k euro range. The flats in the 140k – 230k euro range. To be fair the offer about that flat Philip had seen in the add and we found acceptable was still there, but like with everything that sounds too good to be true, it turned out to be exactly that.

We were shown some bigger 3 bed properties, but these were the outrageous (in Sofia and given the current state of the market) price of € 1 000 per square metre, so the flat itself was approximately € 140k. The total area was 142 square meters, on which they calculated the price, but the actual living space was only 112 with 14 square meters common parts.

To make a 3 bedroom flat out of 112 square metres would lead to a pretty cramped space, given the prices that were being asked.

One of the biggest issues (in my view) in Bulgaria (and one which we Bulgarians are aware of and keep in mind), is that sellers and agents always advertise a property quoting its full area.

The common parts are usually included in any advertisement’s calculations and they usually quote you this higher number, unless you specifically ask for the actual living space area. In our case, we thought we are looking at 142 square meters which were actually 112.

We received polite, professional treatment from Colliers and received everything we asked from them, including some dodgy scheme for delayed payment the developer have suggested. Yet no matter how hard we thought about it, couldn’t make it work financially and ultimately we agreed we should let it go.

After this episode we spent ages sitting on the couch, scheming and planning and figuring out how we could realise our dream. We promised ourselves that we would get there, no matter what happens – even if we have to compromise in the earlier stages.

And so we progressed to the next stage – the ‘acceptable compromise’ solution.