Properties of defaulters, auctioned by banks, are usually cheaper
With the economy tottering, bad loans are piling up at many banks. This is forcing banks to put on the block assets pledged by defaulting borrowers. Therefore, in adversity lies an opportunity, even if it’s for someone else.
Scent a bargain
Properties auctioned by banks are generally available cheaper than the going market rate — prices could be 10-20 per cent lower. It also helps that bidding and buying property in bank auctions has got easier. Unlike the cumbersome physical auctions of the past in which bidders had to assemble at a pre-decided venue, banks these days mostly conduct online e-auctions.
Banks tie up with service providers to auction properties online. Web sites such as NPAsource.com, bankauctions.in, e-auctions.in and bankeauction.com are some such providers. Except for the bidding platform and process, online auctions are similar to physical property auctions.
You are allowed to inspect the property advertised by the bank, or get someone to do it for you. If interested, you have to pay a deposit upfront, called earnest money deposit to the bank to demonstrate commitment. This is usually around 10 per cent of the reserve price or the minimum price at which the bank will sell the property.
With this proof of payment, you can generate a login and password on the platform the bank has tied up with. Some banks may require you to obtain digital signatures to establish authenticity, especially with high-value properties. During the bidding window (a few fixed hours on the date mentioned in the auction notice), you punch in your bid which cannot be less than the reserve price. Others do the same. You can raise your bid based on the competing ones on the online platform. The minimum incremental amount by which the bids can be improved depends on the value of the property being auctioned. The bidding window may be extended if a higher quote is received in the last few minutes of the auction. The highest bidder wins the auction and the property. Unsuccessful bidders will be refunded the earnest money deposit within a few days, with no interest.
With online auctions, it is now far simpler for individuals to scout for cheaper properties across the country.
Online auctions are also more transparent. Says DK Jain, owner of NPAsource.com, “Online auctions reduce the chances of cartels manipulating the bids and cornering the property. Bidders, not known to each other, from across the country and the world can participate online — this results in better prices for the bank’s assets.”
If you win the auction, you have to pay 25 per cent of the purchase amount to the bank by the prescribed period, usually within the same day. The earnest money deposited earlier will be adjusted in this payment. But if you fail to make this payment, the earnest money already paid will be forfeited. The balance 75 per cent of the bid amount has to be paid within a prescribed time too — usually within 15 days from the date of the auction. Failure to comply with this will result in you forfeiting the 25 per cent already paid.
It may be possible to get loans from banks (other than the selling one) to pay for this property. But given the tight timelines, applying for one after winning the auction may be asking for trouble. If you intend borrowing, make arrangements beforehand.
Banks auction properties on ‘as is where is’ and ‘as is what is’ basis. So you, as the buyer, will have to bear the expenses pertaining to the property, including repairs and maintenance, pending statutory dues, and registration and stamp duty expenses.
So carry out a proper inspection of the house first. While the title to the property is likely to be clear, given that the bank is the seller, it’s better to be safe than sorry. Get the property documents vetted before jumping in.
Finally, the defaulting borrower has the right to settle the bank’s dues before the auction date. If this happens, the auction will be cancelled.