How to Buy Property Auctioned by a Bank?

The homes auctioned by banks / housing finance companies (HFCs) usually come at a discount, but you need to exercise due diligence like checking the papers and price

A foreclosed property typically makes for a good deal because it comes at a high discount, but should you opt for it?

These are the houses auctioned by banks to recover the loans that buyers fail to repay and, hence, the cut in prices.

 Mr. Bhargav Y , Managing Partner, Foreclosure India said, “Such properties are cheaper by 10% to 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.

Mr. Devendra Jain, CMD, NPAsource. com, an online distressed property aggregator said, “You can easily get a property worth Rs. 1.5 crore at a discount of Rs. 15-35 lakh. The auctions are transparent and can now be conducted both offline and online,“

Banks  / HFCs advertise the auction in local newspapers, inviting bids for the property.

Distressed property aggregators, like 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.

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% to 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,“ says Mr. Bhargav.

The remaining 75% has to be paid within 15 to 30 days, depending on the bank.You can apply for a home loan with a bank, including the one that has auctioned the property . Before you do so, keep the following points in mind.

PROPERTY INSPECTION..!

The first step is to check the property since you would not 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 many  complaints from people who have bought properties auctioned by banks.

Hence, it's important to exercise due diligence.

Mr. Pankaj Kapoor, MD, Liases Foras, a real estate research firm said, “Property 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.“The bidder gets the property on `as is' basis. If there are pending dues, the buyer is legally expected to settle them,“ says Mr. Bhargav .

These could include property tax, electricity bill, water tax, society maintenance charges, etc.

How to Buy Property Auctioned by a Bank..!

1.  Seek details on reserve price, earnest money deposit (EMD), auction date and tender forms.

2. Collect the tender forms, arrange for EMD, and get a demand draft made for the required amount.

3.  Submit the tender forms, EMD and (KYC) documents.

4.  Bidding begins once you submit your bid

5. Be at the site on the auction date to know if you have won the bid.

6.  If you win, deposit 25% of the bid amount, including EMD, within 24 hours. The rest has to be given within the time limit.

Src: ET

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