The Hindu Business Line : ‘Bank auction’ route to your dream home

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‘Bank auction’ route to your dream home

Sale of mortgage property by banks to recover defaults can help one land a good deal, but check the title deeds and related documents thoroughly.

Manish Basu

Ms Ganguly, (name changed) has just struck a good deal — she has bought a house at less than the market rate, a house put on the block by a nationalised bank as a part of a loan recovery process. She says she has struck a `fair deal’ considering that the resale value of the property, after renovation and paying off overdues, was 25 per cent more than her total expenses.

Now here is one way to get your dream home at an affordable price.

While soaring property prices have made it unaffordable for many home-buyers, here is one less recognised option from a traditional source — banks. Public and private sector banks sell home-loan defaulters’ property usually at a price tag much lower than market price, experts say. Banks estimate that there are several hundred houses in the market for the taking.

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

Mr Abhijit Das, Regional Director, JLL Meghraj, says there is still no organised market for old houses (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. Though sale of such property by banks can be a safe source, buyers should still do title research.

Lesser than market rate

After a bank seizes 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. However, in the auction, the price can go up to any extent depending upon the condition and location of the house,” according to Mr D.M. Mishra, Senior Manager, Law and Recovery, Punjab National Bank.

The prices are generally 10-20 per cent less 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, Mr Rajiva, Chief Law Officer and General Manager, Allahabad Bank, says.

The maintenance and renovation costs over and above the price should be calculated beforehand, according to a property dealer. “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 instalments and even in electricity bills,” he says.

Watch for the ads

But how can people come to know when these houses are put on sale? The banks say they periodically advertise in newspapers. “We have currently 200 houses and flats on sale in Kolkata,” Mr 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.”

There are, however, various technical and legal aspects that need to be counter-checked on a personal basis before buying an old house, the advocate, Mr Auddy, stresses. “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.

These are, however, general guidelines and it is preferable to consult a legal advisor and also do a local investigation with regard to the technicalities concerning the property, Mr Auddy says.