What is Bank Auction Property?Everything you need to know about bank property
Properties in India are often viewed as a great opportunity to invest and own and it is a dream of everyone to own their house. Bank auctioned properties are those where the owner has taken a loan against the property to acquire the asset and has been unable to repay it. Due to the owner’s falling behind on the EMI payments for 4-5 consecutive cycles, the property has been seized by the bank as collateral and will be sold to recover the interest and unpaid principal amount due to the bank. Such properties are sold through a bank auction and can be acquired at prices that are often well below market value.
Distressed properties are rare. There is also limited scope for getting these properties at throwaway prices since the base price for the auction is determined by the loan amount outstanding and the market price in that vicinity.
When a bank places the property for auction, one needs to read the bid document carefully to understand the status of unpaid dues. Bank generally appoints an authorized officer who is expected to conduct the auction, so you can discuss with him/her also. The bid document is the main document, where all the facts covering legal title and responsibility for pending dues are stated. Most of the time, the property is sold on as is where is basis and till the date of the auction, dues are cleared.
The notice which banks publish in newspapers usually constitutes information like details of the property, Earnest Money Deposit (EMD-money to participate in the auction), Reserve price (minimum price at which the bidding starts), time and place of auction, date of inspection, last date for submission of tender form, place and time for collecting the tender form, etc.
Registration for bank auction is done by paying a specific amount decided by the bank, 10-15% of the pending amount, which is shown as the earnest money deposit (EMD). The highest bidder is then selected and the EMD deposited by all the other bidders is subsequently refunded.
Why Bank Auctions are getting momentum?
In India, purchasing a bank auction property is often viewed as a lucrative option as it is not only cheaper but is also well located and is approved by the banks. Some homebuyers eagerly wait for such occasions as properties are sold at a high discount as prices may reduce by even 30-40% of the existing market prices. and thus, it is a win-win situation for both customers and banks as the banks get rid of bad loans on their books and the customers get the property at a cheaper rate. one of the biggest advantages and the main attraction of buying a bank auction property is that there is a very high possibility of getting it at a substantial discount to the prevailing market price of the property.
Points to Consider before Planning to buy Bank Auction Property –
- They should physically inspect the property they are bidding for before deciding on the purchase.
- The title of the property should also be verified as clear and marketable.
- One should read the bid document very clearly.
- One should always assess their ability to meet the financial commitments of the bid and also the overall cost of taxation, registration along with stamp duty.
Risks and Opportunities of Bank Auction Properties
| RISK | OPPORTUNITIES |
| In an auction, one has no way of knowing what the highest bid will be, so there is no guarantee of securing the property. The original owner may sue the bank, resulting in legal delays for the buyer | Properties are offered at a lower cost than existing market prices. Potential to secure a property in a premium location. Generally, there is less need for legal due diligence, as the bank will have inspected documents before giving a loan |
Ways through which you can buy Bank Auctioned Properties
Bank Auction: This process is a lengthier one, with the bank releasing an advertisement, setting a date for the auction, site visit, inviting bids, collecting the offers, and then finally deciding who to sell the property to and in some cases do online or physical auctions so you have to submit EMD and has to participate in the bid.
Through Consultants: One may also reach out to a property consultant or arbitrator with expertise in the location and specifically inquire about distressed asset opportunities. The consultant can also represent investors in discussions with the original owner, or directly with the bank.
Directly from the owner: In this case, the owner and the new buyer would agree on the commercial terms, exchange a token deposit and then complete the bank process to continue with the purchase before signing the agreement and accordingly taking possession.
From where to get info on Bank Auction Properties-
- Banks will invariably release an advertisement in all leading local newspapers when they intend to auction off a property or set of properties.
- There are lots of websites, particularly for auction properties that take info from banks and upload it on their website so you can check them.
- You can connect with local agents, generally, they are aware of the distressed properties.
- You can check banks’ websites also.
Why do Properties Come in Bank Auction?
As per the SARFAESI Act, lenders like financial institutions and banks hold the power to recover mortgaged properties without facing any intervention by the court, in case of the borrower’s default. The defaulter is also granted a period of 90 days for the payment of EMIs and dues, after which the properties are seized and auctioned.
What do Banks do of the Excess amount received from property auctions?
When defaulted properties are sold by the associated bank by the means of an auction in order to recover their dues and further the excess of sales proceeds if any, are duly handed over to the defaulter who is the original property owner.
