People take a home loan by mortgaging their property to the bank to purchase a home. In the events when the loan borrower is unable to pay off the loan, the lender is authorized to sell the property to refund the credit. Such properties are sold by physical or electronic versions of auctions where other potential property buyers can bid to buy the home. Such properties are generally 25% to 30% less than the market price. As the prices of such properties are lower than the market price, many home buyers want to own such properties. Auctioned property is a slightly riskier investment so one needs to investigate every edge of it before investing. In this article, the best and of course the safest way to buy an auctioned property is revealed.
Step By Step Guide to Buy an Auctioned Property
- Prepare Your Finances
If you plan to buy a property under auction; you are to be ready with a handsome amount of cash. The need for the liquid fund is much more in buying an auctioned property than buying a property with a home loan. One has to be ready with a minimum of 25% of the property value in cash. This 25% of the property value has to be given to the lender within 24 hours of the day of the auction. In case you are short of money at that time, you will not only miss the property, but the advance payment which you have made will also be difficult to get back from the lender.
- Search Online or in Newspaper Ads
Once you are ready with the amount, now you are to search for properties which are to be auctioned. Banks generally advertise such auctions in newspapers and some websites too. You are to keep an eye on all those websites. It is better to subscribe newsletters of such websites so that you get the first information about the properties under auction in your preferred locality. You can personalize your search by mentioning your preferred location and the price range.
- Due Diligence of the Property
If you have got a property of your choice, the next step which is the most important is the due diligence of the property. You are to check the legal titles of the property. When a property is auctioned by the bank, most of the times the legal titles are not with the bank. The bank never takes the legal responsibility of the property. It is highly recommended that the property papers duly investigated by a lawyer. Though this may cost you a little, this act of yours will save you from the biggest pitfall of buying a mortgaged property.
- Physical Inspection of the Property
When you are satisfied with the legal titles of the property, it is time to check the property physically. To check the property physically, you are to talk to the bank and they will fix a date when you can visit the property accompanied by a bank worker. While checking the property physically, you are to check if there is any bank notice on the property. Along with that, the condition of the property such as for how long the property has been abandoned, whether the possession is taken by the bank or the defaulter continues to live in the house etc. It is a must that the bank should have the physical possession of the property. Sometimes banks start the auction process with a symbolic possession with just a notice. If you buy such type of properties, you may face a difficulty in getting the possession of the house.
- Submit the Tender Form with EMD
If you are satisfied with the physical verification of the property, in the next step you are to submit the tender form with the EMD (earnest money deposit). The EMD is the tax on the property which has to be given to the bank or the financial institution to prove that you are a serious bidder. While submitting the EMD, you are to take the acknowledgment of the same.
- Submitting the Bidding Form
The bidding form is the document where you are to mention the price at which you want to buy the property. Your mentioned price can be the reversed price of the bank or multiples of any amounts above the reserve price. The reserve price of a property is the price offered by the bank and it is the minimum price. One can mention a price range too in the bidding form. If any bidder bids for a price more than your bidding price, you will lose the bid. One can submit the form physically or online too if the auction is an e-auction. If you fill an online bidding form, you can change the biddings at any time.
- Auction Date
Once your bidding form is successfully submitted; the bank will let you know the successful bidder. If you are the successful bidder, the bank will ask you to deposit 25% of the bidding amount within 24 hours. The 25% of the amount will be including the EMD which you have submitted with the tender form. If you are unable to pay off the said amount within the given time you will lose the property along with the EMD amount. Your EMD amount will be forfeited and it is very difficult to get it back from the lender. If you want to buy an auctioned property with a home loan, it is best to get a pre-approved home loan for the auction property. If the bank denies your loan application, you will have to lose the entire amount which you have given till the date. On the top of that, the bank you provide you a time of 15 to 30 days to pay off the rest of the amount. So if you are planning to buy auctioned property with a home loan, you are to be certain about the availability of the same.
- Sale Certificate
The next step of buying an auctioned property is getting the sale certificate from the lender. Once you pay off the 100% amount of the property, the lender has to provide you with a sale certificate which is the proof of the transaction happened between the buyer and the seller.
- Registration of the Sale Certificate
The last step of this process is the bank auction property registration which is to be done at the sub registrar’s office. Some banks may say that your sale certificate is enough for getting the possession of the house but it is not correct at all. Until and unless you register the property in your name, the property cannot be legally yours. The sale certificate has to be signed by the bank authorities and then it has to be registered.
And here you are done!
Along with the registration, the process of buying a property under auction is successfully completed.
Here we have found that buying a property under auction is a quite lengthy process. But if you can complete the process successfully, you will be able to own a property at much lower than the market value.
