Says B.N.S. Ratnakar, gen- eral manager, Central Bank of India, “Each bank has its own properties that are put on auc- tion. Chances are that people get discounted prices.“
But where do you find such properties and what is the buy- ing process? Here's all you need to know about such deals.
Which properties Usually, these are distress properties that are sold at a price lower than the actual market price. Apart from factors re- lated to location and title disputes, a property becomes distressed in cases where the own- er is not able to repay the loan taken for buying it. The bank, in turn, sells such properties at a value lower than their actual market price to recover the loan.
“The bank or the auctioning authority appoints a valuer to calculate the value of the prop- erty. The valuer gives a fair val- ue to the property. It is usually seen that the value is not spec- ulative, which is the case with other properties being sold in the secondary market. Al- though it is difficult to predict how cheap are these properties but typically, the property is 15-20% cheaper than the market value,“ says Amit Mishra, a New Delhi-based lawyer specializing in property-related cases.
The Debts Recovery Tribunal (DRT) authorizes the sale of properties under two Acts-the Recovery of Debts Due to Banks and Financial Institutions Act and Securitisation and Reconstruction of Financial Assets and Enforce- ment of Security Interests Act.
How to find properties The only way to find out about such properties and when are they getting auctioned is to keep a close eye on regional and nation newspapers. Banks and courts publish notifications of such auctions in newspapers.
“As per the directives of the DRT, the notice gives the date of auction. Other details such as property price, location and name of the owner are also mentioned. It also gives names and addresses of the bank branch and authorizing officer or the recovery officer (often called official liquidator) of the sale,“ adds Mishra.
The bank ensures that the property is vacant at the time of auction.
The auction The bank notice invites bid- ders for the auction. However, there is a procedure to follow before you can actually become a part of the bidding process.
You need to submit token money, usually 5-10% of the property value, to the recovery officer or the bank officer su- pervising the auction. “Usual- ly, there is a period of one month between the announcement of the auction and the actual auction date. Therefore, there is ample amount of time for you to arrange for the ear- nest (token) money,“ says New Delhi-based real estate consul- tant Pradeep Mishra.
Apart from the token money, you will be required to submit copies of your permanent ac- count number (PAN) card, bank savings account proof and address proof. The token mon- ey will be returned to you in case you don't win the auction.
The bidding process: The process is regular, where par- ticipants bid a price and the highest bidder gets the proper- ty. The authorizing officer closes the bid by mentioning the name and address of the winner. Just after the bidding process, the property will be signed in your name. You sim- ply need to collect the papers and keys to the property from the authorizing officer.
After the auction: Apart from the token money, you will have to arrange some more money in case you win the bid. “If you win the auction, you will also need to deposit another 25% of the property value with the re- covery officer within the next 24 hours,“ adds Mishra.
In the next step, you will have to pay up the remaining money in the next 15-20 days of the bid. For this, you are al- lowed to apply for a home loan. Sometimes the bidding bank itself will extend you the loan amount. Like in other properties, you also have to bear registration and stamp duty costs. Watch out for Though the process looks simple and the deal good, there are a few things you must consider before buying such a property.
Condition of property: All distress properties are not in good condition and the bank or the court will sell it in its ex- isting condition. In other words, you may have to spend extra for repairs. Says a Gur- gaon-based broker who deals in property auctions, “It has been observed in some cases that properties are not in good condition from inside. There may be leakages or some struc- tural damage. So you may re- quire additional amount for some repairs and construction.
The properties are generally sold on `as is where is' basis condition.“
Dues from the past: “You should also make enquiries re- garding any arrears of property tax and electricity bill dues be- fore participating in the auc- tion,“ said the broker quote above. Banks or courts do not include such dues in the price of the property, neither do they settle them before the auction.
Litigation: There are chances that the auction can be challenged in DRT by other participant bidders. The authorizing officer may or may not accept the application, but the case may even be taken up in a civil court. If the matter goes into further litigation, the possession may get delayed. If you lose the case, the DRT will simply return your invested amount with interest, as per the applicable norms and the property will be auction again.
While you will spot such deals in the market, you may have to wade through a collec- tion of speculative real estate agents to actually get it. Apart from that, you need to have a lump sum to get into such a deal since you need to pay about 30% upfront.
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