Skip to main content

Buying Auctioned Homes

Best SIP Funds Online 

Repossessed properties sold by banks can appear to be a steal for bargain hunters, but they come with their own set of risks. 

Buyers should remember that a bank's claim on a property put up for auction is restricted to the outstanding loans against it. Thus, the base price is determined by the outstanding amount. 

This explains why auctioned properties usually go at a discount to the prevailing market price, and this discount can be as high as 30% in some cases. 

However, retail investors find it difficult to bid for such properties as high networth real estate investors usually corner them with the help of bank managers, agents, etc. Though the introduction of online auction platforms has made the process more transparent now, the risks involved with these properties remain. The properties are auctioned on an "as is, where is" basis. This means the bank in question will not take any responsibility should any issues arise with the property in future. 

This is the opposite of a normal house purchase deed, where the buyer can put a clause asking the seller to indemnify the buyer from any encumbrance on the property prior to the date of registration. "Since these auctioned properties are coming with an 'as is, where is' clause, the banks don't take any responsibility. Prospective buyers need to make sure that the risk is commensurate with the discount they are getting 

This is the opposite of a normal house purchase deed, where the buyer can put a clause asking the seller to indemnify the buyer from any encumbrance on the property prior to the date of registration. "Since these auctioned properties are coming with an 'as is, where is' clause, the banks don't take any responsibility. Prospective buyers need to make sure that the risk is commensurate with the discount they are getting 

1. Loans from other lenders 
The bank that auctions the property will cover all its dues, but there is no guarantee that the same property is not mortgaged with other lenders. This problem is more acute on land parcels than constructed residential flats or on commercial properties. 

This is because most lenders insist on original sale agreement, share certificates and no objection certificates from the housing societies, etc and therefore, you get a fair idea by getting details from there. However, you have to independently verify, in addition to the documents given to you by the bank, with other agencies like municipalities, tax authorities, etc for land being sold. "Since India doesn't have a unique property id, it will be difficult to locate all mortgages linked to that  

Also make sure that if it is a joint property, all owners are also co-borrowers for the loan and thus bound by the auction process by the bank. Else, other owners can create trouble later. 

2. Other outstanding dues 
Though a bank will recover its dues fully from the bid amount, the bid winner has to bear all the related liabilities on that property like pending society dues, electricity bills, property tax, etc. Sometimes, these dues can be substantial, warns Kapoor of Liases Foras. This is because people default on housing loan EMIs last. There is high probability that the borrower might have defaulted on other expenses before that. 

Meeting the society members and asking them about pending dues is one way of going about it. However, you have to verify other dues like electricity bills, gas bills, etc yourself. Pending stamp duty claims, if the previous owner has shown less value at the time of registration and the department has raised any claim on that, can be another issue. This can be verified by comparing the value shown with the prevailing rates in that area. For under-construction properties, some dues may be pending

3. Property titles 
Generally, it is assumed that the property titles are clear because banks have already lent against it. However, this may not be true. With competition picking up, there are several instances of banks lending against properties with not so clear titles. For instance, for buildings that don't even have occupation certificates. Even if the banks might have taken full precaution at the time of giving loans, illegality might have happened later. 

4. Tenants in the house 
The chance of earlier owners staying in the house is less because banks usually ask them to vacate before auctioning the property. However, if it is already let out, the tenants may be still staying in the house and it becomes your responsibility to evict them. Freeing a house of its tenant is difficult in India, especially if the tenant has been staying there for long. The best strategy is to avoid a house which is already occupied 

5. Physical condition 
The existing owners will stop paying towards the upkeep of a property once they realise they are going to lose it. Even before the property is auctioned, the existing owners might stop maintening it due to financial stress. While this is not a very big issue, you do need to visit the house and also the locality to assess the situation. 

SIPs are when Stock Market is high volatile. Invest in Best Mutual Fund SIPs and get good returns over a period of time. Know Top SIP Funds to Invest Save Tax Get Rich

For further information on Top SIP Mutual Funds contact Save Tax Get Rich on 94 8300 8300

OR

You can write to us at

Invest [at] SaveTaxGetRich [dot] Com


Popular posts from this blog

Real Returns in Investing

Download Tax Saving Mutual Fund Application Forms Invest In Tax Saving Mutual Funds Online Buy Gold Mutual Funds Leave a missed Call on 94 8300 8300 Real Returns in Investing     A Anil Singh (name changed), 44, works with a private company and believes in investing his entire savings in fixed deposits. His financials from the year 2000 till date is given in the table. Anil's savings in FDs gave him an average return of around 8%. The total amount saved over the 174 months (From January 2000 to June 2014) is Rs 49.80 lakh. The value of his investment today is around Rs 66.71 lakh. Naveen Singh (name changed), 44, works in a similar profile like Anil. However his expenses were on the higher side. His financials are as in the table. Naveen invested only in equities. The total amount saved over the 174 months (From January 2000 to June 2014) is Rs 38.40 lakh. The v...

Budget 2014 Highlights for Saving

Download Tax Saving Mutual Fund Application Forms Invest In Tax Saving Mutual Funds Online Buy Gold Mutual Funds Leave a missed Call on 94 8300 8300   The new finance minister Arun Jaitley has just presented his first budget. What measures does the budget contain that will specifically impact savers and investors? Here they are: 1. Housing loans exemption for self-occupied properties increased to Rs2 lakh: Earlier this amount was Rs1.5 lakhs. This move barely keeps pace with the inflation in asset values.   2. Investment limit under 80 (C) increased to Rs1.5 lakh: This is a good move again and offers some relief to taxpayers.   3. IT exemption increased to Rs2.5 lakh, Rs3 lakh for senior citizens. This comes as a minor relief for taxpayers.   4. Annual PPF ceiling to be enhanced to Rs1.5 lakh, from Rs1 lakh: This is in tune with the change in 80C.   5. Long term capital gains tax for debt funds has been rai...

ICICI Prudential MIP 25 - Invest Online

Download Tax Saving Mutual Fund Application Forms Invest In Tax Saving Mutual Funds Online Buy Gold Mutual Funds Leave a missed Call on 94 8300 8300   ICICI Prudential MIP 25     (CRISIL Rank 2)   This scheme was launched March 2004. Please see the chart below for the one, two, three and five years annualized returns from this scheme. The minimum investment in the scheme is Rs 5,000. The asset allocation of the portfolio is 24% equity, 72% debt and 4% cash equivalent and others. Please see the chart below for the monthly dividends declared by the scheme, on a per unit basis, over the last 5 years.   For further information contact Prajna Capital on 94 8300 8300 by leaving a missed call Leave a missed Call on 94 8300 8300 Leave your comment with mai...

Franklin India Smaller Companies Fund - Invest Online

Download Tax Saving Mutual Fund Application Forms Invest In Tax Saving Mutual Funds Online Buy Gold Mutual Funds Leave a missed Call on 94 8300 8300   Franklin India Smaller Companies Fund   While the universe of small-cap stocks in India is vast, there are very few equity funds which take on the task of sifting through this space for good long-term bets. Franklin India Smaller Companies Fund has managed this with aplomb. What we like about this fund is its significant out-performance of its category and benchmark over the last four years, and its ability to moderate portfolio risk despite investing in the riskiest segment of the equity market. This fund's stock selection strategy, like that of Franklin India Prima Fund is focused on finding companies that generate positive cash flows across business cycles. High return on investment and manageable leverage are also filtering criteria. Says R. Janakiraman, fund ma...

How to open a Capital Gains Account?

Download Tax Saving Mutual Fund Application Forms Invest In Tax Saving Mutual Funds Online Buy Gold Mutual Funds Leave a missed Call on 94 8300 8300   How to open a Capital Gains Account? You can open a capital gains account in an authorized bank. The Government has notified 28 banks which can open the Capital Gains Account on behalf of the Government. You have to apply for opening the account by filling out the required application form (Form A) and submit proof of address, PAN card and photograph. You cannot withdraw funds from a capital gains account using a cheque book or ATM, like you do in your normal savings bank account. There are procedures to be followed to withdraw funds from the capital gains account. Investment in Specified Bonds Section 54EC of Income Act provide that if the seller invests whole or part of capital gains arising from the sale of asset in specified Capital Gains, within a period of six months of the ...
Related Posts Plugin for WordPress, Blogger...
Invest in Tax Saving Mutual Funds Download Any Applications
Transact Mutual Funds Online Invest Online
Buy Gold Mutual Funds Invest Now