A couple who bought their dream home through a mortgagee sale want to warn others about the potential risks.

Isaac and Jody Johnson bought a property in the Rai Valley through a mortgagee sale last month and were surprised to find the former owner still living in the house when they went to move in.

The couple were under the impression they could move in on August 3 and have been paying the mortgage, rates and insurance since July 31, creating a dispute which was played out on national television.

They have since discovered that as the new owners they are legally responsible for any existing leases and have given 20 days' notice to terminate the lease.

Mrs Johnson said they had not intended to create controversy by going to Campbell Live. "Our point in going to Campbell Live was to highlight the legal loophole that allows the person to stay in our home and delay moving out.

"We find ourselves in a somewhat surreal situation and hope good prevails."

Inherited lease agreements are only one of the risks of buying a house through a mortgagee sale. Insurance issues and tender documents that relate to the house and property also fall into a grey area.

Gascoigne Wicks partner Brian Fletcher said most mortgagee sales go smoothly, but the Johnsons' situation highlighted the need to ask questions before signing a contract.

As a standard requirement, tender documents advise the purchase is subject to tenancies, but it is up to the buyer to do find out the situation.

"The only thing we could do then is refer the question to the mortgagor's lawyer, or talk to the current owner directly, who can be reluctant to provide information and make it difficult for potential buyers to view the property."

Stallard Law director Tony Stallard said potential buyers are best to approach the mortgagor themselves to clarify the position and try to reach an agreement privately, including what chattels are included in the sale. Light fittings, floor coverings, blinds, curtains, dishwashers, heat pumps, even hot water cylinders and water tanks could be considered as chattels.

"It really is buy at your own risk - people are thinking ‘what a bargain, what a nice garden', or, ‘what a nice spa'. But when they move in they find the whole place has been stripped out, including the plants, the irrigation, the pump shed, and the costs quickly add up."

Buyers also need to be careful about insurance, because once the sale goes unconditional, the insurance is passed to the buyer even though settlement has not been reached.

It is truly a case of “buyer beware”, he said. "The issue of insurance is a tricky one - in usual property sales it doesn't change until the date of takeover, but people may have to organise their own insurance from the time they have an unconditional agreement."

Although people may think they are getting a bargain, banks still have to recover their costs, including valuations, marketing and legal fees. "Banks will make every effort to try and resolve matters in other ways - mortgagee sales really are a last resort."

- The Marlborough Express

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