8 Guidelines To Buy Bank-Auctioned Properties

Bank-auctioned properties or non-performing assets (NPAs) offloaded by banks could be a great opportunity for buyers with ready cash. If invested smartly, a buyer could avail of as much as 20-30 per cent discount on their original market prices.

However, getting hold of bank-auctioned properties is not an easy task. One would hardly get to know about such deals. To help buyers and investors who want to register, State-lender State Bank of India, among others, has started to auction such properties online.

Also Read: Planning To Buy Property Via Bank Auction? Keep These In Mind

What is a non-performing loan

A home loan turns into an NPA after the owner defaults on a loan for over six months. Banks give such owners multiple notices and warning before sealing the property for an auction.

Here is a check-list for those who want to buy NPAs auctioned by banks:

Keep the money ready

Be ready with money before you go ahead to bid for an NPA. You may have to make a large upfront payment, in a short period in the form of an earnest money deposit. The cash has to be kept ready at a single source to ensure you can complete the transaction. If you fail to pay the deposit, the bid might be rendered invalid.

Comparing the price

Compare the reserve price and market price of the asset. The extent of bidding depends on the demand of the property in a particular area. Also ensure that the reserve price is at a fairly good discount to the market price to get ahead in the bidding. The asset might otherwise turn out to be just as expensive as a good one.

Home work is the key

If the asset is coming at a good discount, do some research on the property. Ensure that the reasons behind such a discount are fair. Many banks focus on recovering money from NPAs and do not look into making a profit out of the transaction. Banks also don't benchmark it to the prices prevailing in the area to the exact current rates, leaving you a discount to gain from. If the discount is steeper than expected, it might have some loopholes. Do check for them.

Take a walk

Do a site visit before zeroing in on an NPA property. Meet the local authorities and brokers to ascertain the value of properties in that area and that of the particular property.

Doing it without support

It is rather tough to get a loan for such properties. So, make sure that you can cover the entire price of the property without a loan.

Also Read: Explaining Foreclosure In Detail

Legally right

Check the legal rights that you gain by buying such a property. A bank is not the actual owner or seller of the property and does not take responsibility of the title of the property on encumbrance. Make sure that you get a clearance from the borrower to become a confirming party to the sale, for it to be legally tenable. Meet a lawyer, who specialises in such deals to study the documents before you bid for the project.

Local checks

Cross-check the mutation deeds on the property at the municipality to make sure the borrower is the sole owner of the property and has all the legal rights over it.

Get the dues cleared

Ensure that the original owner paid all the dues such as utility bills. If the owner hasn't, discount it from the amount to be paid towards the property.

(Katya Naidu has been working as a business journalist for the last nine years, and has covered beats across banking, pharma, healthcare, telecom, technology, power, infrastructure, shipping and commodities)