Banks auction old houses taken over from defaulters

Do you have any plans to buy a house at an affordable price then here is one new way.

Banks though less recognized option from a traditional source sell home loan defaulter’s property usually at a low price tag than market price. Experts say the public and private sector banks sell home-loan defaulters’ property usually at a price tag much lower than market price. According to banks estimation there are several hundred houses in the market for the taking.

Recently Ganguly, (name changed) has struck a good deal. She has bought a house at less than the market rate, auctioned by a nationalized bank which was taken over by the bank as a part of a loan recovery process. She said she has strike a `fair deal’ considering that the resale value of the property, after renovation and paying off over dues, was 25 per cent more than her total expenses.

Recently the property prices had soared making unaffordable for many home-buyers with this new option problem of buying a house of many people especially the middle class, can get solved.

“It is safer to buy an old house from a bank since they verify the title deeds before mortgaging the property,” says R. L. Auddy, Solicitor and Advocate, Sanderson and Morgans.

Commenting on this Abhijit Das, Regional Director, JLL Meghraj, said for the sale of old houses there is still no organized market (in India), but the numbers on sale will gradually increase as the real-estate market matures and because of price differentiation as compared to new houses. Moreover the sale of such property by banks can be a safe source, buyers should still do title research.

When bank has seized the property from a defaulter a valuation of the property is conducted through an independent chartered surveyor. “We generally compute two values — a market value and a distress sale value. The minimum bidding price or the reserve price is fixed at the distress price level.

According to D.M. Mishra, Senior Manager, Law and Recovery, Punjab National Bank however, in the auction, the price can go up to any extent depending upon the condition and location of the house.” But the prices are generally 10-20 per cent less as compared to ongoing market price.

“Distress selling causes the price to be on the lower side,” a United Bank official says. The condition of the house, however, should play an important role in evaluating the price, Rajiva, Chief Law Officer and General Manager, Allahabad Bank, says.

A property dealer advice people that they should calculate the maintenance and renovation costs over and above the price beforehand. “There are other expenses involved as well. Since the properties are sold on an ‘as is where is basis’, they involve some overdue payments pending with the municipality, tax department, in co-operative installments and even in electricity bills,” he says.

Not many people know about the auction of houses done by banks then how can people come to know when these houses are put on sale? As per the sources of the banks they periodically advertise in newspapers. “We have currently 200 houses and flats on sale in Kolkata,” Mishra of PNB says. A United Bank official says “residential houses sold through the Sarfaesi Act account for 30 per cent of the total default property, the rest being industrial assets. Of the total 3,800 NPAs where Sarfaesi has been enacted, there are currently 500-600 residential houses.”

The advocate, Auddy, stresses that one should counter check various technical and legal aspects on a personal basis before buying an old house. “Possession record in title is of utmost concern here. One should investigate the title from the documents and conduct necessary searches in registry offices, preferably for the past 30 years and in local courts, preferably for 13 years. One should also verify municipal records to find out whether tax is outstanding and whether names of past owners is mutated to ensure that possession of the property remains with the owner and the same is being delivered by the bank to the prospective buyer,” he advises.