What is Foreclosed Property?
Banks frequently confiscate properties after owners become unable to make EMI payments for an extended period of time. These properties are known as “foreclosed properties.”
Banks that seize such properties auction them off to recoup their losses. When banks seize properties, they become the rightful owners of the property under the Sarfesi Act and have the complete legal authority to sell them.
These properties are typically sold below market value because the primary goal of banks is to recover their debts rather than to profit. If you are willing to go through the process of purchasing foreclosed properties, you can get a great deal.
Benefits of Purchasing a Foreclosed Property
Price benefits – Typically auctioned properties are priced 20-25% less expensive than market prices.
Legal and secure –Â Banks and financial institutions only authorize debts after verifying all legalities. Bank auctions are lawful and governed by the SARFAESI Act and the DRT Act.
Quick Transaction: The entire transaction is generally completed very quickly – even in less than 2-3 months. Ownership of auctioned properties is then transferred to the purchasers in a month or so.
Pitfall in Purchasing Foreclosed Property
No assurance of quality or internal conditions – A bank auctioning off property is unable to provide any information about the property’s history or condition. If the property is damaged, the banks will not repair and give it to you. Property conditions may be suspect as a result of damage caused by irate homeowners.
A large initial investment is required – Only serious buyers are considered because a large sum is required as a guarantee.
Difficult Process – For some, the process may appear to be tedious and intimidating.
How can a foreclosed property to be auctioned be found?
Data and information about foreclosed properties are dispersed. There is no single central database of information, but it is widely dispersed. Here are some resources for learning about foreclosed properties.
What to do after locating foreclosed property?
Once you have initial information about an auction, you can go to the property with an official from the foreclosing bank.
The website contains detailed information about the property, such as the borrower’s name, the state and city where the property is located, the reserve price of the property, the exact time and date of the auction, and so on.
How to participate in an auction?
To take part in an auction, you must submit an application and KYC (know your customer) documents to the concerned bank, as well as a bid value ranging from 5-20% of the reserve price.
Then, on the main bidding day, the highest bidder wins and must pay the remainder of the money to secure the property. There may be some advance required, with the remaining funds due in a few weeks. You can use a home loan if necessary, but keep in mind that you will need a reasonable amount of cash to participate in the auction anyway.
Issues to be aware of about foreclosed property
It should be kept in mind that foreclosed property is obtained from another owner who was in financial distress, and there is a good chance that there may be some equity in the property such as:
Unpaid property taxes
Pending Maintenance money
Pending electric/gas bills, etc.
Banks will not recover these, and they will be your headache, but even after paying these, you may be getting a good deal.
Precautionary measures prior to purchasing a foreclosed property
Hire an attorney so that all legal documents can be thoroughly reviewed, particularly if the sum involved is significant.
Do not purchase an old property that will require extensive renovations.
Previous owners are less likely to stay in the house since banks typically require them to vacate prior to actually auctioning the property. If the property has already been rented, the tenants may still be present, and it is your responsibility to evict them. It is difficult to free a house from its tenant, especially if the tenant has been there for a long time. Avoiding a house that is already occupied by tenants is the best strategy.
