There are cases when a home owner defaults on the EMIs that he had to pay for his home loan and when there are multiple defaults, the lender has the legal right to repossess the property. Such properties are then again sold through auction, either through physical auction or their electric version.
While these properties can be availed at a price lower than the market value, there are some things to keep in mind:
- One should first try to find out about the outstanding municipal tax and society dues of the property which have to be cleared by the subsequent buyers. Defaulting on payment EMIs mostly comes at last so it is highly likely that the local taxes and society charges must have remained unpaid. The prospective buyer has to pay the outstanding amount in such case and it is crucial that you figure out the exact amount as much as possible because it would be an added expense.
- Legal matters also have to be taken into consideration. In case of a property that has been auctioned by the bank, the legal titles are not with the bank though. The bank also refuses to take responsibility for the title because in spite of having taken over the property, it does not become the owner of the property. Hence, while buying a property, whether through auction or otherwise, it is advisable to get the ownership title of the property properly investigated by a lawyer. It could prove to be a little expensive but is worth it as a lot of worries will be saved in the long run.
- Arranging for the funds while buying an auctioned property is crucial because there is a catch here. Usually, when one buys a regular apartment, the payment schedule is decided between the buyer and seller and even if the person has taken a loan, EMIs would be deducted only in a monthly basis. The scenario is slightly different in the case of a property bought at auction. If the bid for the property is successful, then one has to pay the balance amount in a very short period, within a month or so. By failing to do so, the deposit money is also lost. Hence, it is important to have a proper funding in place, over and above saving funds for family emergencies. Yes, a home loan can be applied for buying such a property but the full auction amount has to be arranged from one’s own resources and only then will the home loan lender issue the cheque. An in- principle approval has to be first taken for the loan which is decided on the income of the applicant.
- The homebuyer for an auctioned home should also take the TDS into consideration. The homebuyer has to deduct TDS at 1% from the purchase consideration in case the property value exceeds Rs 50 lakhs, in case of any property. In case of auctioned home, this TDS amount has to be deposited in the account of the original home owner, since the bank was not the owner of the property. One has to acquire the details of PAN, so that the amount can deposited likewise. In case the PAN details are not acquired, then one has to deduct 20% TDS instead of 1%. Next, one also has to arrive at a decision with the band regarding the amount of TDS that is to be treated as a part of the purchase consideration. Just in case the bank does not agree, the cost of purchase will go up by this 1% TDS that is supposed to be deducted as it becomes quite impossible to recover the TDS amount from the original property owner.
The reason why homebuyers still look for auctioned properties despite these risks is that the property can be availed a far lower rate than market prices. The aim of the bank is to recover their outstanding amount and based on that, the base price of the property is fixed, and the discount can be as high as 30%, based on the market price. However, since banks follow “as is, where is” policy with regards to the property, it means that it will not take any responsibility should some issue arise with the property in future. Hence, it is essential that one covers all the loopholes before applying for such a property purchase and if all goes well, one would have struck a pretty good deal.