Risks to look at while buying an auctioned home
Reclaimed properties sold by the banks can appear to be stealing for the bargain hunters but these come with their own risk set.
The buyers should remember that the banks do assert on the property put up for the auction which is actually restricted to outstanding loans against it. Hence, base price is determined by the remaining amount.
This certainly explains that the auctioned property generally goes at a discount to prevail the market rate and the discount can be high as 30% in the same case.
Retail investors, however, find it pretty difficult to bid properties as high net worth the realty investors’ corner them the help of agents, bank managers, etc. The introduction though online auction platforms which has made the process more transparent now, the risk involved with the properties remain. The properties auctioned on as is, where is the basis. This basically means that the bank in the question will not only take the responsibility should issues arise with the future property.
This is certainly opposite of normal house buying deed, where the home buyers can put the clause while asking the sellers to indemnify the home buyers from the encumbrance on the property before the registration date. As these auctioned properties are coming with the clause, banks do not take any responsibility. The prospective home buyers require ensuring the risk which is commensurate the discount they are actually getting.
In other words, the investors of the auctioned properties require being careful. Using risk-return norm, these should understand that the rate is cheap as the associated risks. Looking closer to possible risks the interested parties might come across and tips to mitigate them.
Loans from other lenders
The bank auctions the property will cover the dues, but there is no guarantee to the similar property which is not mortgaged with the other lenders. The problem is more accurate on the land parcel then the constructed housing flats or on the commercial properties.
This is as the most lenders maintain original sale agreement, no objection and share certificates from residential societies, etc. and thus, one gets a fair idea by getting the details from there. One has to independently verify in addition to documents provided by the banks with other agencies such as tax authorities, municipalities, etc. for being the land sold. Since the country does not have a unique property ID, it will actually be difficult to locate mortgages linked to property from available land documents.
Also, ensure that if there is a joint property, all the owners are co-borrowers for loan and hence bound by auction process by the bank. Other owners can actually create the trouble later.
Other outstanding dues
Though bank will recover the dues completely from bid amount, the bid winner has to bear all related liabilities on the property such as pending society dues, property tax, electricity bills, etc. sometimes, the dues can actually be the probability that borrower might have the default on other expenses before that.
Meeting the members of the society and ask them about the pending dues is the way is going about it. One has, however, verify other dues such as gas bills, electricity bills, etc. yourself. Pending of stamp duty claims that the previous owner has shown lesser value at the time of registration and department has raised claims on that, can be a different issue. This can be checked by comparing value shown with prevailing prices in that area for the under-construction properties, some dues may be pending towards builder, thus check it directly with the builder.
Usually, it is supposed that property titles are somewhat clear as the banks have lent against it already. This might not turn true, however. With the competition picking up, there are various examples of banks which are leading against the properties with not many clear titles. For example, for building that does not have occupation certificates. Even the banks might have actually taken full protection at the time of providing leans, impropriety might happen later.
For instance, the builder may have actually constructed more than the allowed by the original plan. Complete buildings occupation certificate is sensibly safe and the property title issues figure more under-construction properties or for the land parcels. The buyers must ensure that the projects are approved completely and the developer is moving as per the approved plan.
Even if one is buying from the developer, one needs to check the historical documents. RERA has made life somewhat easy for the new house buyers but all the properties coming up for the auction are the non-RERA ones. Hire any realty lawyer and vet all the transaction for reasonable time period such as least for over 30 years and ensure that there are no such legal tangles involved.
Tenants in the house
The chances of previous owners staying in the house are less as the banks generally ask them to vacate in advance to auctioning the property. If it is still let out, however, tenants may actually be staying in-house and becomes the responsibility to evict them. Releasing the house of the tenant is pretty difficult in India, especially the tenant has been staying there for long. The best strategy here is to ignore a house which is occupied already.
Present owners will stop paying towards the upkeep of the property once these realize they are going to lose it. Even before the property is auctioned, existing owners might actually stop maintaining due to the financial stress. While these are not big issues, one needs to visit the house and locality to assess situations.
Take the help of a good civil engineer to assess work to be done I the apartment and to the building. If the developer is not maintained properly, it certainly has to be renovated as well as the new owner, one will be asked to contribute. Also, it provides for the substantial amount of money for maintenance and repairs after getting possession.