Things to Know Before Buying Bank Auction Property

Repossessed properties that are sold by banks appear like great deals to bargain hunters. Such properties are sold at much lower rates than the actual property price. In some cases, the discounts can be as high as 30 percent. However, they have their own set of risks associated with them. The buyers need to keep in mind that the base price charged by the bank for such repossessed properties is dependent on the outstanding loan amount on them. 

You must be wondering why properties are sold at discounted rates by the banks in an auction. What you need to understand is that a bank’s claim is limited to the outstanding loan amount against it. These are properties that have been pledged as collateral while securing a home loan.  The base price of the property is fixed depending on the outstanding loan amount. This is the reason why most of the properties are sold at about 30 percent discount than the actual market price.  

Bank will not be Legally Responsible

The properties are generally auctioned by the bank on “where-is” or “as is” basis. This implies that the property is being sold in its present form legally and physically. This also includes encumbrances. Hence, the bank would not take any responsibility if there is an issue with the property after an auction. This is not the same as a normal purchase deed where you can include a clause stating the seller to compensate you from any encumbrances on the property.  

Investors choosing to purchase properties in an auction need to be really careful. They have to understand that the price of a property is cheap because there are risks involved. You need to take a closer look at the possible risks that you can encounter in the process and how you can mitigate them.  

Look for Loans from Other Lenders

Just because a bank is auctioning a property doesn’t imply that all the dues will be covered under it. There is no guarantee that the property has not been mortgaged with other lenders. This problem is more prominent in land parcels rather than on commercial properties or residential flats. This is because most lenders request for No Objection and Share certificates along with the original sale agreement from the housing societies. This provides a fair idea of what the actual status of the property is.  

Having the property independently verified can prove to be advantageous. As there is no unique property ID, you may find it difficult to identify all mortgages linked to a property from the available land documents. You also need to verify if it is a joint property or not. If care is not exercised, then the other lenders may create a problem.  

Check Outstanding Dues if any

Though the bank aims to recover the dues from the bid amount, the bid winner will have to bear all the liabilities associated with the property. This could include pending property tax, electricity bills, society dues, and a lot more. If the previous owner defaulted on their housing loan EMIs, there is a high probability that there may be other expenses that might have been defaulted. 

You need to investigate the pending dues with the concerned bodies. You will have to verify if there are any pending electricity bills, stamp duty claims, or anything else. If the property was under construction, then there may be some amount pending towards the builder. In that case, you need to verify it directly from the builder. 

Check for Property Titles

Many buyers make a big mistake in assuming that the property titles are clear as the banks may have lent money against it. This may not be the case. As there is immense competition in the banking sector as well, some banks lend properties against titles that are not so clear. For instance, they may approve a home loan with no occupation certificate. 

The builder may have constructed more than what was allowed under the actual plan approved by the authorities. Completed buildings that have an occupation certificate are reasonably safer to invest. In land parcels and under-construction properties, the major problem lies with the property title. The buyers have to ensure that the project has been fully approved and the developer is proceeding as per the actual plan before bidding on auction property. 

Even if you are making a purchase directly from a builder, you need to verify the historical documents. Thankfully, this has been made easier by RERA. You can confidently make a purchase if a property has been RERA approved. However, the ones being auctioned didn’t come under the purview of RERA and hence you need to take an expert opinion. You can hire a reliable real estate lawyer for the purpose to find out if there are any legal tangles involved in the property you are interested to bid on. Even if the bank has taken all the precautions while passing a home loan, some illegality could have taken place.       

Ensure there aren’t any Tenants in the House/Building

The chance of any tenants occupying a property is usually less. This is because banks usually notify them to vacate the property before the auction. However, if they haven’t, then it becomes your responsibility to make them vacate the house. It is quite difficult to free a house from a tenant especially if they have been staying for a very long time. The best strategy would be to avoid bidding on a house that has already been occupied.   

Inspect the Physical Condition of the Property

Once the existing owners realize that they would lose the title of a property, they stop paying towards its upkeep. They could also stop paying due to the financial burden they are under. You can consider inspecting the house and also assess the situation and the locality before placing a bid on the property.   

You can get help from a civil engineer to understand the work done in a flat or any other independent house. If the building has not been maintained appropriately, then you will have to renovate it. A substantial amount of money may go into maintenance and repairs if the property hasn’t been well-maintained.