On 29th May 2018, SBI conducted an e-auction of commercial and residential properties across the country. About 1,000 commercial and residential properties were to be auctioned starting that day.
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Generally, the properties auctioned are those which are pledged as collateral for business loans and home loans. However, owing to non-payment of EMIs and dues by the borrowers, these properties are taken over by the bank, under the Security and Reconstruction of Financial Assets and Enforcement of Security Interest (Sarfaesi) Act. The defaulters are given a notice period of 60 days, after which the properties are seized and auctioned.
Banks start a legal process to repossess a property that has been pledged as collateral, if a borrower fails to pay back the loan. After repossessing the pledged property, banks sell it in an auction. The property value is decided keeping in mind its construction, location and the area it belongs. The likely value called the reserve value is disclosed to the prospective buyers, beforehand. The interested buyers have to deposit an initial amount of 10-15% of the value of the property.
Many banks auction properties. Home buyers wait for such occasions as properties are sold at a discount. It’s a win-win for both customers and banks. Banks can get rid of bad loans on their books. There are mixed opinions and experiences when it comes to property auctions by banks. Some citizens are overwhelmed by the discounts and some others may have cause for regret, due to unanticipated problems and liabilities.
If you are planning to take part in a bank’s auction, you must be well aware of all its advantages and disadvantages:
1. The greatest advantage of buying an auctioned property is you get it for a price, much lower than the market price.
2. You might get a property in a location you always wanted but couldn’t, because of lack of money or unavailability of land in that area.
3. The buyer will have lesser burden of going through the legal liabilities of the property.
1. Bidding is the greatest challenge. To anticipate the highest bid for a property is nearly impossible.
2. There is no assurance of getting the property you want at the desired price.
3. Any surprises and unanticipated shocks after submitting the winning bid, are to be addressed by the buyer.
4. If you overlook the disclaimers provided in the bid documents, you might fall in serious trouble.
5. Buyers don’t have the flexibility to negotiate the terms of purchase, as they do, in the normal course of purchasing a property.
1. It is always better to physically inspect a property, before deciding on the purchase.
2. Verify the title of the property. It should be clear and marketable.
3. Assess your ability to meet the financial commitments of the bid.
4. Assess the overall costs like taxation, registration and stamp duty.
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