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

Franklin India High Growth Companies Fund

Franklin India High Growth Companies Fund Online One of the key developments that the Street is keenly waiting for is a cut in interest rates by Reserve Bank of India . With demand rising gradually, a rate cut is expected to boost earnings growth for companies. In such a situation, schemes which invest in high growth companies are best suited, especially when seen from a long-term perspective. One such scheme is Franklin India High Growth Companies Fund. Fund managers Anand Radhakrishnan, Roshi Jain and Srikesh Nair strictly follow valuation parameters when it comes to choosing stocks.Valuation parameters, such as enterprise value, price-to-earnings growth ratio, forward price-to-sales ratio and discounted earnings per share, play a critical role in selecting companies for investments. Taking into account these parameters, the fund managers invest in companies which are poised for high growth in their respective sectors. This approach has been in favour of the scheme and it has perform...

Avoid NFOs

  Don't get taken in by the flurry of new fund offers. You will be better off sticking to the tried and tested schemes.   For the past one year, to cash in on the bull run in equities, mutual fund houses have gone on a new fund offer (NFO) overdrive. But experts are unanimous in their advice: avoid NFOs . While past performance is not an indicator of how a fund will fare in the future, it does tell the investor how skilful the fund manager is. This crucial information is missing in an NFO. Not only is there no track record to judge an NFO by, many NFOs are similar to funds that already exist. If the new fund is similar to existing funds, you are better off investing in the latter. Around 67% of the new launches in 2014 were closed-end products. Investing in the NFO of a closed-end fund is doubly risky. In case the fund's performance is lacklustre, a closed-end fund does not allow you to exit. Even though closed-end funds are listed on the stock...

Atal Pension Yojana contribution Tax Benefit for spouse

Contributions to Atal Pension Yojana (APY) are eligible for the same tax benefits as the NPS. This means that the contributions can be claimed under Section 80CCD (1B). The current limit for Section 80CCD (1B) is   Rs   50,000, over and above the   Rs   1.5 lakh limit under Section 80C. Section 80 CCD (1) is a different one, meant to cover employers' contribution towards NPS . You cannot get tax benefit by investing in the name of your spouse under Section 80 CCD . ------------------------------ ----------------- Invest Rs 1,50,000 and Save Tax under Section 80C. Get Great Returns by Investing in Best Performing ELSS Mutual Funds Top 10 Tax Saver Mutual Funds to invest in India for 2016 Best 10 ELSS Mutual Funds in India for 2016 1. BNP Paribas Long Term Equity Fund 2. Axis Tax Saver Fund 3. Religare Tax Plan 4. DSP BlackRock Tax Saver Fund 5. Franklin India TaxShield 6. ICICI Prudential Long Term Equity Fund 7. IDFC Tax Advantage (ELSS) Fund 8. Birla Sun Life Tax Relief 96 9. ...

Mutual Fund Exit Load Changes

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 Mutual Fund Exit Load Changes AMCs don't communicate about any change in exit load directly with investors, but do update on their website   The exit load applicable to your investments is the load which existed at the time when you invested in the particular fund. Any subsequent changes in the exit load will not be applicable to your investments.   However, Asset Management Companies ( AMCs ) periodically publish addendums in the newspapers, which state any change in exit loads of specific schemes managed by them. Such changes are also posted on their websites. However, a direct communication to an investor is not made, considering the costs involved in doing so. In their own interests, investors should not only track the performance of the funds they i...

L&T Income Opportunities Fund dividend

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 L&T Income Opportunities Fund declares L&T Mutual Fund has announced dividend under the following schemes: Scheme Dividend ( R /unit) L&T Gilt Investment-DQ 0.3 L&T Gilt Investment Direct-DQ 0.3 L&T Income Opportunities Ret-DQ 0.31 L&T MIP-Wealth Builder-DQ 0.3 L&T MIP-Wealth Builder Direct-DQ 0.3 L&T MIP-DQ 0.3 L&T MIP Direct-DQ 0.3 L&T Short Term Opp-DQ 0.26 L&T Short Term Opp Di...
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