Buying auctioned properties: Take a step back and research on legal issues

One has to do serious groundwork, and take help from a seasoned lawyer

Plagued by non-performing assets, banks are busy putting properties up for sale. State Bank of India alone has auctioned Rs 700 crore worth of properties this month. Samantak Das, chief economist and head of research and REIS, JLL India, says, “The offer price of such properties is linked to the loan outstanding. Usually, you may get the properties to get transacted at 10-25 per cent discount-to-market value.” 

Sathya Kalyanasundaram, country head and managing director, Experian India, says, “Foreclosure is when an individual prepays his or her loan before the agreed loan tenure. However, if an individual is not able to repay the home loan, and the lender has to repossess the home asset, this will reflect as a delinquent tradeline in customers’ credit reports. The case may even be indicated as ‘written off’ by the lender. The high delinquency in a report and/or the written-off status indicates gross repayment indiscipline.”

Number of ways to apply: You can bid in an auction — online or offline. Banks usually advertise the sale in local newspapers inviting the bid. Distressed property aggregators, such as Foreclosure.com, NPAsource.com, and bankauctions.com or direct bank’s auction site like sbi.auctiontiger.net, list the details of the property, price, auctioneering bank, and date of auction on their websites. Some sites even conduct online auctions. Das says, “Once you get preliminary information about an auction, you should see the property with a bank official. Check for structure, the physical condition of the property, etc.”

Buyers need to bear in mind that though the properties are being offered at a discount, they may have pending issues or liabilities, which need to be adequately investigated. So, getting a lawyer and property valuator is essential. Mumbai-based lawyer Pratibha Bangera says, “A lawyer can find out if there are other bank claims or litigations against the same property, whether the bank has original title deeds and loan details and pending dues. In addition to calculating default price and market value, the lawyer will also know if, in reality, these prices can go beyond the market price if society dues or other charges are in dispute with the bank or if it is being sold on an ‘as is where is’ basis. Sometimes, there could be a tenant who may have adverse possession rights to the property. Sometimes even society or municipal authorities may have some claim for illegal additions or alterations. So such properties should not be purchased without the help of a lawyer who understands property.” In short, ensure you do proper due diligence.

Seal the deal: 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. To participate in the auction, you need to submit the required paperwork along with know-your-customer documents. And, a deposit of 10 per cent of the reserve price. On sale, the highest bidder wins. You have to pay one-fourth the quotation within 24 hours, and you get a month or so to come up with the remaining amount. You can even apply for a home loan to buy the property, with your lender of choice, including the bank auctioning the property. Das says, “Get a valuator to know the real value of the property.” Buying repossessed property can get you a good deal, provided you are willing to do the work.