Bank Auctioned Propeties May Be 15 to 30% Cheaper..!

Mr. Shashi, a Mumbai-based advocate, bought 2 houses in Chembur &  Vasai in 2005 and 2010, respectively, through 2 different bank auctions.

Mr. Shashi purchased these properties from banks that opted to take recourse under Section 101 &  the Debt Recovery Tribunal (DRT) Act.

The most common Acts under which banks take recourse are the DRT, state-specific Co-operative Housing Societies Act, and the SARFAESI (Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest) Act.

The SARFAESI Act, 2002, allows banks and Housing finance companies (HFCs) to auction properties (Residential and Commercial) when borrowers fail to repay their housing and commercial real estate loans.

It helps banks reduce their non-performing assets (NPAs) by adopting such measures for recovery.

According to NPAsource.com, the net NPAs of 40 listed banks rose to Rs. 92,398 crore in December 2012 from Rs. 61,558 crore in March 2012. There were nearly 23,000 registered properties for auction, worth Rs, 21,000 crore. Of these, 8,548 residential flats and 1,846 commercial properties are up for auction.

Mr. Ram Sangapure, General Manager, Central Bank, says, "Many banks today recover their NPAs under the SARFAESI Act, as it is faster, hassle-free, and empowers banks to do so without the intervention of the court."

15 to 30% Cheaper..!

Mr. Sanjay Dutt, Executive Managing Director, South Asia, Cushman & Wakefield, said, "Usually, houses bought under the SARFAESI Act are up to 15 to 30% cheaper than the prevailing rates of houses in that area. This is because demand for such houses is low, as very few people know about this channel &  also banks do not stress on a high price as long as they can recover their losses.

" Buying through this channel saved Mr. Shashi as much as Rs 8 lakh to Rs.10 lakh than the prevailing rates in those areas. Valuations of bank-auctioned houses tend to be on the conservative side, as it is a distress sale.

Properties under SARFAESI Act...!

If the borrower defaults on repayment EMIs of his / her housing loan for six (6) continuous months, banks or HFCs give the borrower a 60 day (2 Month) period notice to regularise his / her repayments.

If the borrower fails to do so, banks / will issue another 30 day (1 Month) period notice. If the borrower does not pay even in this period, his or /  her housing loan would be declared an NPA. This is when banks will auction his / her mortgaged property to recover their loan.

Bank / HFC issues notice about possession..!

If the borrower still fails to repay the loan, the bank / HFC will take possession of the property that has been kept as mortgage or / collateral. The bank can take the help of the police in case the borrower does not part with his / her property.

After the property is under its possession, the bank / HFC will issue a notice in newspapers. This is when potential buyers should prepare themselves & wait for bank's auction-notice. Wait for the auction-notice

The bank / HFC now hires a government appointed valuer, who will value the property &  arrive at a reserve price (RP) or /  a minimum bid price. It is a price below which the bank is not allowed to sell that property.

If the price fetched exceeds the bank's dues, the excess amount is given to the borrower. Only after arriving at the reserve price, will banks advertise auction-notice.

They can publish this only in one English and one regional newspaper, 30 days prior to the auction.

Since information about such notices is limited, one can also look at websites like www.foreclosure.com  & www.npasource.com. These portals give information about the latest properties that are up for auction by banks.

However, to register on NPAsource.com, you will have to shell out Rs. 18,000 annually to view some 1,000 NPA notices in a year across India.

How to participate in the auction?..

Interested bidders must submit their bids in a sealed envelope to the bank. Along with the bid, the bidder has to pay 'earnest money deposit'. This deposit is usually 5 to 10%t of the value of the property auctioned.

However, this deposit will be refunded in case the bidder does not win the bid. Some banks may also charge a nominal fee as tender fees.

On the auction day, the sealed envelopes are opened in front of the bidders and the highest bid is announced.

Bidders may or / may not get another chance to revise their bids. If the bank / HFC has failed at achieving the reserve price, they may postpone the auction or even reduce the valuation of the property. This revision may take another two - three (2 to 3) months.

What if you win the bid..?

You have to pay up to 25% of your bid amount within 24 hours to confirm the purchase. The balance amount can be paid in a month or two month. This time period given to the buyer varies from banks to banks / HFcs.

Mr. R K Bansal, Executive Director (Retail Banking), IDBI bank, said, "If the property value is huge, the buyer can negotiate with the bank and discuss the tenure within which he can pay the balance amount. The buyer can also get loan to buy that property, if he has a decent credit score."

 

Since the bank / HFC had previously lent against the property, there is clarity on property title. However, these properties are sold on an 'as-is' basis, which means the properties are sold just the way it had been possessed.

 

Mr.Anshuman Jagtap, Advocate, Hariani & Co said, "Since the property has been possessed by the banker forcefully, there are chances there may be pending dues or / even litigations. For instance, the owner may have some unpaid property taxes, electricity / water bills, society dues and so on. Hence, do not get carried away by the low price of the house, there are chances you may have to pay for such liabilities"

Banks may or / may not have information about such liabilities, so it is best to hire a property lawyer & check for such loop-holes before finalising the deal.

NPASource.com

 

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