How to buy a 3-bedroom flat at a 2BHK price: Secrets of distressed properties

Auctioning of properties by commercial banks and housing finance companies is a sure-fire mechanism that offers a way to acquire properties at bargain prices. Auctioning of foreclosed or distressed properties is a legal practice undertaken by lenders to recover outstanding dues for unpaid monthly payments.

All such auctions (announced in national newspapers and published on banks’ websites) and resales are governed by the Securitisation and Reconstruction of Financial Assets and Enforcement of Interests on Securities Act (SARFAESI) of 2002.

Purchasing a property at auction requires patience and special due diligence. Below are some things to look out for when trying to purchase a distressed property at a bank-supervised auction.

Prepare a budget

You have to set a maximum threshold that fits your pocket, such as property prices You may exceed your estimates during the auction process, especially if there is interest from multiple parties. Since the auctioneer will demand the full bid amount within 2 to 3 weeks of closing the deal, it is mandatory that you set aside adequate funds for the auction purchase. It will usually be difficult to obtain loan funds at the time of purchase; however, a loan against property (LAP) can be obtained once the transfer of the property into your name is duly concluded.

Failure to pay the full purchase price may result in a substantial loss, i.e. 25% of the value, 10% being an earnest money deposit (EMD), together with an additional 15% due on the day of bidding.

Read also: How to get a Dubai Golden Visa through real estate investment

Conduct first-hand research

Getting a bargain at your first auction is nearly impossible. Your patience will be tested, for sure. Distressed property auctions are not for you if you are in a hurry or need a home right away.

In the case of a distressed property listed, it is absolutely essential to verify the owner’s details, research the locality and surroundings, accessibility to essential amenities, etc. A knowledge of recent real estate transactions in the neighborhood and the prevailing rates in the circle can provide you with a starting point for a realistic value of the property.

Visit and valuation of the property

Visiting the designated property and speaking to local residents is another important exercise as it will help determine the quality of life, availability of amenities, and proportion of residential units in that particular neighborhood. Also, whether there is a school, place of worship, or hospital near the unit in question.

In the case of a property listed as distressed, it is absolutely essential to verify the owner’s details, research the location and surroundings, and accessibility to essential services.

You may want to consider hiring a property appraiser who can determine the optimal price for the property, which can help develop a rough estimate if you have to apply for a loan at any point down the road. Bringing in a real estate expert will protect you from your own arrogance during the auction process, as bids often exceed the ideal price once emotions take over the final bid.

Regulatory control

Hire a property lawyer and investigate any outstanding debts with the local municipality. In the case of a distressed property, it is fairly obvious to check for outstanding taxes, fines or disputed bills, as these unpaid debts can jeopardize your purchase intention.

Other items that need to be completed include examining the title deed, obtaining an indemnity certificate from the bank, a recovery certificate issued by the debt recovery tribunal (DRT) and a no objection certificate (NOC) in the case of a group housing unit.

Conclusion

It is important not to be overwhelmed by factors such as multiple estate agents at an auction trying to outdo each other, the cost of extensive renovations and repairs that may be required on the property, or even delays in the process of completing the acquisition paperwork. All of these factors lower buyer morale, but the significant savings that come with the auction process can outweigh all of these issues. Happy searching!

Raj Khosla is Founder and CEO of MyMoneyMantra.com

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