Lured by lower than market prices, individuals and investors tend to love bank auctioned properties. But, there are pitfalls and going blindly can be misleading. We are not saying you can always be deceived, but, do your homework well.
How the Auctioning process?
Every auction has to begin with a reserve price and so is the case with bank auctioned properties. It is determined by the guidance value. There is an earnest money deposit that is payable, so the bank knows that you are a serious buyer.
If you are a successful bidder and the price quoted by you is the best, you have to pay an amount that could range from 25 to 30 per cent on the day of the auction.
But, here is why bank auctioned properties can be a trap:
1) Legal disputes
It is clear that the bank sells the property on "As Is" basis and is not responsible for clear title etc. There can arise legal issues. There have been instances, when a property has been sold by a property owner, more than once.
We wish to re-iterate that the bank does not assume responsibility for any legal issues. Once the property is sold through an auction, you may have a harrowing time fighting issues legally.
There have been issues of multiple lien, which makes the need for a lawyer to vet everything in advance. If the auction is conducted after Court orders, you would certainly not have to worry too much. Again, we are not saying that it happens often, but it is better to play safe.
2) You may not be privy to certain facts
All banks, in fact, most may not offer you all the possible facts. A person was narrating, how he realized after buying, that there was an amount of property tax that stood unpaid.
3) No home loans available
You do not get home loans for bank auctioned property, which means you have to take a big risk with your money. You would have to borrow privately from friends and relatives.
4) Various other dues
A person defaulting on his loan, may also default on other dues. For example, one will have to check if the society dues are paid. In a desire to chase returns, investors overlook a host of things including poor maintenance of the society, repair works that need to be done internally, unwanted leakages etc.
5) Other costs
Look for various other costs as well. For example, if you are going to move into an old apartment, check the maintenance costs. Suddenly, you may realize that the society is collecting money for painting and other works.
So, please be careful and visit people who are staying in the society.
Do remember that a poorly maintained apartment, may lead to higher costs for a proper upkeep. Also, the age of the building could be 15, 20 or 25 years, given that home loans are taken for a longer duration.
Need for legal help
If you think you are going to get a clear title, because it involves a bank auction, you could be making a mistake. You have to and must seek legal assistance. Also, check for maintenance and other dues from the society etc.