By Nitin Bhatia
Currently Economy is going through very Bad Phase…High EMI’s, No Salary Hike & Fear of Job Loss are giving jitters to majority of Salaried Class…By the way, i am also part of this Stressed, Depressed but still well Dressed lot but fortunately things are still not that bad for many.
Every phase is blessing in disguise for some irrespective its Good or Bad, i mean Bad phase is also beneficial or profitable for some lucky ones…Why, i will explain…In this uncertain environment, Specially Salaried class find it most difficult to serve their Home Loan EMI’s, which form a major chunk of Salary…Whenever a salaried class opt for Home Loan, it is based on certain assumptions of periodic salary hike, Job will remain safe, No unexpected expenditures etc etc..Unfortunately, if any of these assumptions go wrong then biggest casualty is Home Loan EMI…Most unfortunate part is, This world is emotionless i.e. Banks need their money back at any cost…If person default regularly then Banks put such properties on Auction to recover their amount…
Now Good Part (Buyer’s Perspective), Properties sold under Bank Auctions can be bought for as cheap as 30% from Current Market Rate. Yes, i am not kidding and there are reasons behind the same…Firstly, the price of properties sold under Bank Auctions is fixed according to Govt Guidance Value whereas Current Market Price is normally 3-4 times in upcoming areas and 2 times in developed areas…Secondly there are only few bidders in bank Auctions as these properties are usually bought by investors or people who have ready funds available for purchase…Hard Fact is that these properties cannot be bought through Home Loan.. Lets see how..
Whenever bank auctions these properties, u will see 2 terms in Auction Notice
(a) Reserve Price: Reserve Price is Minimum Bid Price i.e. Starting Bid Price of Auction or Lowest Price at which Bank is willing to Sell the Property through Bank Auctions.
(b) Earnest Money Deposit (EMD): It is actually Good Faith Deposit i.e. Amount to be deposited before Auction Process by Potential Bidder showing that he is a serious buyer..Only after depositing EMD, a person is eligible to participate in Auction Process. EMD is refundable for unsuccessful bidders.
After Auction process, successful bidder need to deposit 25% of total Sale Amount (including EMD) on the day of Auction itself and rest amount needs to be deposited within 15 days from Auction…
I think, its quite clear that only person with ready funds can fulfill these stringent payment conditions…Now Let’s take practical example..Suppose Bank has put up Property A for Auction with reserve price of 50 Lacs therefore EMD will be 5 Lacs…Potential Bidders need to pay 5 Lac upfront in order to eligible for participating in Auction Process…
Assuming Person B bought property for 60 Lacs during Auction process. On same day, he needs to
pay 15 Lacs i.e. 25% of Sale Amount…As he has already paid 5 Lacs as EMD therefore rest 10 Lacs should be deposited on the Day of Auction after Auction is over so that he fulfill condition of payment of 25% of Sale Amount i.e. 15 Lacs to be paid by Auction Date…Rest 45 Lacs i.e. 75% of Sale Amount should be deposited within 15 days from Date of Auction.
Recently, one of my friend requested me to accompany him for couple of Bank Auctions therefore it gave me an opportunity to understand complete process….Fortunate for my friend, he bought Auctioned Property 25% Cheaper then Market Rates.
Normally Notices for Bank Auctions are Published in B Rung Newspapers and not in most Popular ones…For benefit of my readers I am listing following websites which provide bit comprehensive data on properties listed for Bank Auctions…Hope these sites will be useful for my readers
Lastly those buyers who would like to take cost advantage of Auctioned Properties through Loan route, can opt for Loan against Property…Only catch is, first you need to arrange for 100% funds from own sources or through Short term borrowing of 1 Month or so from Mortgage institution or from friends & relatives….After buying property through Auction, you can take Loan against Property and can repay the borrowed amount. Secondly, Interest Rate under Loan against Property option will be slightly higher compared to Normal Home Loan Rate & there is no income tax benefit available to salaried class in this case…Kindly do your homework properly in terms of cost benefit analysis before choosing this option.
Note of Caution: Properties under Bank Auctions are sold on “As is Where is & What is There is Basis” which implies Bank does not take any responsibility regarding Title of the property i.e. on encumbrance front, No liability of Bank. In the event of any legal dispute or any other claim on property, Bank does not indemnify the buyer from same. The complete responsibility of encumbrance rests with Buyer for auctioned properties.
Whereas in normal sale deeds, buyer can put a clause where the seller indemnify the buyer legally from any encumbrance on property prior to date of property registration therefore buyer is safe from all encumbrances prior to purchase.
Most important point is to insist the bank that Original Borrower of the Property, whose property is being auctioned by bank should become the “Confirming Party” in your Sale Deed / Registration with the bank so that in future he should not file case in court to cancel the auction.
It is always advisable to take help of Local Competent Professional Property Lawyer before participating in Bank Auctions as he can help you in understanding the rules and regulations. He can also help you to check Property Title and encumbrance on property (If any).
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