These properties are priced almost 15-20% cheaper than their original market price and most properties sold in auctions are usually ready-to-move-in properties.
There are several circumstances which may lead to auction of the property such as loan default, tax default, bankruptcy, execution of court decree, Seizures and Confiscations, regulatory violation, government surplus (government properties which are no longer required for public use), etc. But is it a good idea to buy such a property? We decode
What is an auctioned property
Why is it auctioned?
Otherwise a borrowe has the right to submit his objection within 60 days with justification for non-payment of EMI. In case, no reply is received from borrower or bank is not satisfied with the reply then bank can initiate bank auction process. After the expiry of this 60 days, the bank can auction the property after 30 days.
How to find such properties
“Websites like ibapi.in, financialservices.gov.in, e-auctions.gov.in, MSTC (Metal Scrap Trade Corporation) e-auction platform, etc., list properties being auctioned by various government departments and organizations. Apart from government websites, public sector banks and financial institutions often auction off properties due to loan defaults. You can check the respective bank websites for auction notices,” said Himanshu Sachdeva, Senior Associate, TAS Law.
Inspect the Physical Condition of the Property
To inspect the property’s physical condition, you should talk to the bank and get a date fixed to visit the property. When doing that, you must ascertain that there are no bank notices pasted on the doors of the property or the society noticeboard anymore regarding the property you are considering. Check the condition of the house thoroughly before bidding for it.
How to bid?
How to register
Registration at MSTC portal -> Authorization of documents from MSTC -> Attach interested properties -> Pay Pre-Bid EMD required against property -> Participate in auction (bidding) -> Bid reject/accept by bank -> decision email to H1 bidder. At present there is no registration fee.
” In order to bid a tender form alongwith earnest money deposit (DD/banker’s cheque) needs to be submitted before the tender closing date. It is important that while submitting the tender form, detailed KYC document also is submitted as non submission of KYC document may lead to rejection of tender form,” said Sadhav Mishra, Partner, SNG & Partners, Advocates & Solicitors.
The bank generally charge 10% of the property’s value as Earnest Money Deposit (EMD) before the auction. “This serves as a safeguard and eliminates amateur bids. Thereafter, if the person wins the bid then they are supposed to pay 15% of the amount same day of winning and rest 75% payment is required to be made as per the terms of auction authority, which may differ from case to case,” said Sachdeva.
If you are unable to pay the said amount within the stipulated time you will lose the property along with the EMD amount paid to the bank earlier.
What is the pre-payment and taxation angle?
“Payment plan of auctioned properties can vary depending on auctioning authority, the type of property, and the specific terms and conditions of the auction which may include Earnest Money Deposit (EMD), complete upfront payment, partial upfront payment and remaining within stipulated time period, installment plan, Escrow account, etc. It is important to carefully read and decide the payment plan associated with auctioned property, failing which the payments made by the bidder may get forfeited and property may get re-auctioned in the market,” said Sachdeva.
GST, stamp duty & registration, TDS (where value of property is above 50 Lakh), Property Tax, etc will be applicable while purchasing the auctioned property.
Pending dues
Buyer is also responsible for paying any unpaid fees associated with the Bank’s Auction property. These contributions include municipal taxes, society charges, statutory dues, electricity bills, and more.
How to ensure there are no pending dues
“The bidder should ask for all the relevant property documents which includes sale deed, title documents, property tax receipts, electricity, water and other utility bills, etc. The bidder shall also conduct a proper title search from concerned authority/registry, before bidding on immovable property, before bidding. Apart from conducting due diligence, now it is also necessary to obtain NoC from local authority (L&DO if property is situated in Delhi). Apart from conducting title search, it is also important for bidder to check that there no other pending loan/mortgage or legal case pending against the property,” said Sachdeva.
“The buyer can also hire a qualified attorney with experience in property matters to review the documents and make sure there are no hidden issues,” said Prakash.
What documents should a bidder ask for?
– Ankur Mahindro, Managing Partner, Kred Jure – Advocates & Legal Consultants lists down the nexxesary checklist after winning the bid
1. Verifying the antecedent title deeds and checking the original documents with the bank like loan agreement and/or mortgage deed;
2 Whether the bank is in lawful possession of the property being auctioned
3 Whether there is any litigation concerning the property;
4 Whether there are any past dues of any society or government authority such as property taxes, etc;
5 If the owner of the property is a company, then check with ROC if any other financial institute has charge/ mortgage over the property;
6 Check in the office of the Sub-Registrar of Assurances to be sure if there are any adverse title claims;
7 If the property is in a society, the NOC of the society for sale of the property. If the property is a land, then revenue records should be seen to ascertain whether the name of the owner is mutated therein as owner.
Following are a few relevant documents a bidder may ask before bidding in any property:
i. Title Deed and Ownership Documents which includes sale or conveyance deed, previous title document to establish ownership history, etc
ii. Property Tax and Utility Bills
iii. Encumbrance Certificate
iv. Approved Building Plan and Layout Plan
v. NOC from Local Authorities
vi. Completion and Occupation Certificate
vii. Auction Catalog provided by the auctioning authority, which should include terms, conditions, and any obligations of the buyer.
viii. Auction Invitation or Notice
ix. Property Inspection Report
If there are structural changes to a property that haven’t been approved by the relevant local authority, it can lead to legal and regulatory issues. However, the bidder should assess the nature and extent of the unapproved structural changes.”
“Determine if these changes are significant, affect the property’s safety, or violate local regulations. If the structural change does not violate any local regulation, then the bidder should not be concerned about such change, however, the bidder still can use such unapproved structural change to further negotiate with the seller/auction authority. Further, in cases where such changes are violating any local regulation then there are chances that local authorities may provide process for regularizing unapproved changes by paying fines, obtaining retroactive permits, and ensuring that the changes meet current building codes,” said Sachedeva.
The Security Interest (Enforcement) Rules, 2002 place a responsibility on the bank to deliver the property to the buyer free from encumbrances upon receiving payment.
How long will it take for bank to give possession of property to person who has won the bid?
In cases of auction of distressed assets, the courts in several judgments have observed that banks should make sure that after winning the auction bid, the bidder shall get the peaceful possession of property within 6 months from auction, subject to the payment terms agreed between the bidder and bank.
In case if the auction authority fails to deliver the possession of property within stipulated time period (generally six months), the person have right to get a refund of the bid amount deposited with the Bank along with interest and damages.
“You may get the possession immediately after the completion of the sale and registration of the property in your name. However, it may vary depending on the property, location, final payment from the buyer and legal procedures involved,” said Shetty.
Symboliic vs physical possesion
Buyers must know that there are two types of possessions. One is symbolic possession and second is physical possession.
Physical possession means the bank already has direct physical possession of the property.
What are the risks associated with purchase of auctioned properties ?
“There is an inherent risk of title while purchasing in auction as the bank transfers the title on as is where is basis so in the event of any pending litigation on the property or any dues or any lacuna in title, the same shall pass onto the purchaser,” said Sadhav Mishra, Partner, SNG & Partners, Advocates & Solicitors.
Pre-Auction Deposits: When buying property at a bank auction, the buyer must deposit 10-15% of the total property value as a deposit before the auction and if they win the auction and don’t pay the balance, they also lose their deposit.
“The bidder shall always keep in mind that borrowers do have certain rights in a property that is being auctioned, especially when the property is being auctioned due to loan default or mortgage foreclosure. For instance borrower have right to participate in the auction, the borrower also have ‘Right of redemption’ i.e. to cure the default by paying the outstanding dues, including the loan amount, interest, penalties, and any other associated costs, before the auction takes place, which may result in nullifying the whole auction process. Further, the borrower always have legal remedies specially in cases where the foreclosure process was conducted improperly and that may result in prolonging the auction process,” said Sachedva.