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Foreclosed Property
The houses auctioned by banks usually come at a discount, but you need to exercise due diligence.
A foreclosed property typically makes for a good deal because it comes at a high discount, but should you opt for it? You will need to keep several things in mind before rushing to bid for it, but let us first consider what such a foreproperty is. These are the houses auctioned by banks to recover the loans that buyers fail to repay and, hence, the cut in prices. Such properties are cheaper by 10-25% of their prevailing market value.
The bank that forecloses a property sets a `reserve price' while auctioning it. This is based on the price at which the property was bought and the outstanding loan on it. It is the minimum amount the bank will accept as a winning bid during an auction. You can easily get a property worth `1.5 crore at a discount of `15-35 lakh. The auctions are transparent and can now be conducted both offline and online.
Banks advertise the auction in local newspapers, inviting bids for the property. Distressed property aggregators, such as Foreclosure.com, NPAsource.com and BankDRT.com, list the details of the property, price, auctioneering bank and date of auction on their websites. Some, NPAsource, for instance, even conduct online auctions. Once you get the preliminary information about an auction, you can visit the property along with the foreclosing bank's official.
To participate in the auction, you need to submit an application and KYC (know your customer) documents, along with the bid value and Earnest Money Deposit (EMD), usually 5 -10% of the reserve price, to the bank. The bank opens the bids on the date of auction and the highest bidder is declared the winner. In the case of an online auction, bidding takes place on the day of auction. If you win the bid, you have to pay the bank 25% (including EMD) of the bid amount within 24 hours. The remaining 75% has to be paid within 1530 days, depending on the bank. You can apply for a home loan with a bank, including the one that has auctioned the property, to pay the remaining sum. Before you do so, keep the following points in mind.
Property inspection
The first step is to check the property since you wouldn't want to get stuck with one that is not in a good condition or in a neighbourhood that is not to your liking. In fact, online consumer sites host several complaints from people who have bought properties auctioned by banks. Hence, it's important to exercise due diligence. Buyers should find out the property's age, the quality of construction, unit quality, layout, etc. Besides, auction rates might match the market rates, say experts. So, it will be useful to engage a broker to ascertain the right price before bidding for a property.
Paperwork
Customers assume that the documentation and valuation of the property being auctioned will be in proper shape since the bank gave a loan on it. However, banks may not always know about pending dues or frauds. A purchaser in Mumbai found out about it the hard way when she had to pay property tax barely six months after buying the house. She also found out that the house had already been sold by the owner to two other people.
Do not make assumptions just because it's a bank auction property. There are often disputes on such properties and it is important that you get a legal adviser to exercise due diligence. The bidder gets the property on `as is' basis. If there are pending dues, the buyer is legally expected to settle them. These could include property tax, electricity bill, water tax, society maintenance charges, etc. Hence, it's best to conduct the necessary research before participating in the auctioning process.
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