When one decides to purchase a house or a property, the main aim is to be able to acquire at the best price possible. With the recession in real estate market, the houses are available at a discounted rate of 5-10%. But are you aware you can get a house at a good bargain of at least 20-30% discount at the bank auction?
Banks keep on auctioning properties which they seize from defaulters who have missed multiple repayments on their home loans. Under the SARFAESI (Securitisation and Reconstruction of Financial Assets and Enforcement of Securities Interest) Act, 2002, Banks are allowed to auction off such “repossessed” or “stressed” properties.
The main purpose for the auction is to recover the outstanding principal and interest amount owed to the bank. As a result, these houses or properties are often sold at unreasonably cheap rates as compared to the market rates.
Though it might seem simple as seen in many movies, buying a home at these auctions is not just showing up and making a bid. There are certain rules and procedures to be followed.
Auctions take up a lot of time, so one has to decide if the house or property offered is worth the time and money.
The property’s original sale deed and non-encumbrance certificate under CERSAI should be checked thoroughly. Avoid unregistered properties which do not have complete documents as those can have bad implications later.
Professional help should be taken to understand the process better and what the post-purchase liabilities will be.
The title ownership should be clear. The house owner should have a recovery certificate from DRT (Debt Recovery Tribunal). The bank will have to give you an Indemnity Certificate which will protect you from any future claims made by the owner.
A NOC (No Objection Certificate) from the housing society should be attained and check for details on any dues pending.
These details will help you get an idea on the liabilities you have to deal with post possession.
The exact auction price is not disclosed before hand. The bank sets a base price of the property after considering guidance value (from government regulations), market value of the property, and existing liabilities on the property. However, It is recommended to get an estimate on the market value prior to the bidding. You can do this by getting the property appraised by a professional property evaluator. Then add a margin of 10-12% over the calculated price by the appraiser to ascertain the appropriate bid amount for the auction.
As most of the properties auctioned by the banks are under legal disputes and unpaid dues, the buyer will have to bear any unpaid property taxes, utility bills, etc.
All these added expenses have to be taken into consideration to get a fair idea of the actual cost of the purchase.
You will have to pay to the bank ‘earnest money’ or deposit to be able to bid. This is approximately 10% of the reserve price of the auctioned property. This amount is later refunded if you do not win the bid. In case of winning a bid, you will have to pay 25% of the bid amount on the day of the auction.
The entire bid amount (remainder) will have to be then paid in a short period (as less as 15 days) after the bid is made and on failing to do so within the stipulated time, you will lose the deposited amount. It is required that you arrange the funds ahead of time either through your savings or from a home loan.
It is of utmost importance that before you prepare to bid, makes sure to perform due diligence to the best of your capacity. If you do the research well, you can get an attractive deal on the house.