What to know before bidding for a property in an auction?

If a buyer takes a loan from a financial lending institution such as a bank and fails to repay it within the deadline, he may be in trouble. While the financial institution may extend the time to repay by levying high interest rates, failure to pay even then can result in confiscation of the property.

Before confiscating, banks under the Security and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act, give notice of around 60 days to the borrowers.

See also: Can banks auction property if borrower defaults on loan EMIs?

Termed non-performing assets (NPA), these properties are then auctioned to recover part of the money that has been invested on them.  An estimate property value is arrived upon by considering factors such as configuration of the property, the developer brand, the location, the owner’s name in case of a celebrity, etc.

While announcing for the auction, a reserve price for the property is mentioned so that bidders who are interested can apply.

See also: Bank of Baroda withdraws auction notice issued to actor Sunny Deol

Things to know before participating in property auction

Check the property

Before bidding for the property, it is recommended to visit the property and check for yourself all the vital details about it. Check if the blue print in the property documents matches with the original property and there is no illegal construction anywhere. Stay clear of illegal construction work in properties like getting extension done without getting proper permissions as these always have the risk of being demolished by the municipal authorities.

Know prevailing market price

With the help of professional property consultants, know the prevailing market rates in the property’s location and see if it is profitable for you to invest in that.

Understand any discount offered by the banks

If the property has some issues, banks offer some discounts. If you are offered any such discount, understand what the issues for which these discounts compensate are.

Check for any existing dues

There is a probability that the owner of the house would have defaulted on dues attached with the house like property tax, maintenance bill, electricity and water bill. Identify the dues that are pending. There may be a case where the banks wouldn’t be clearing them and you would have to settle them once you are the owner. In such a case, compare if the base reserve price is worth and whether investing in the property makes sense.

Check the mutation deed

Check mutation deed of the property which you will get from the municipal corporation to know all details about ownership. You can use the help of a lawyer to identify if any encumbrance exists or not.

Home loan for the buying the property

While you may be buying a property on auction, you may also want to avail of a home loan to pay for the property. Firstly, check if banks give home loans for properties bought in auction and then proceed with the bidding.

See also: Bank of Baroda seizes Nirmal Mall over loan default