Flipping through newspapers can be an interesting exercise for property buyers. A number of banks give advertisements in these, at rates which at first glance look much cheaper than the market one.
For instance, one advertisement for a property in Kandivali on the outskirts of Mumbai says the floor price is Rs 25 lakh for a 1,000 sq ft property. Whereas, the price of a 1,000 sq ft flat in Kandivali would be close to Rs 1 crore or even more. What the advertisement implies is that Rs 25 lakh is the minimum amount – called ‘floor price’ for the flat. Flats will go through a process where other buyers will bid as well.
So, what are these flats? Usually, these (mortgaged to banks, which then auction these to recover their dues) are auctioned when buyers are unable to pay their equated monthly instalments for an extended period – could be six months or even a year, depending on the policy.
Banks use the SARFAESI Act to take possession of mortgaged property in case the borrower defaults on repayment, recovering the dues by selling it. There are even websites such as NPAsource.com and ForeclosureIndia.com which provide information on flats up for auction.
Flats sold through auctions by banks are usually those which are highly illiquid — in other words, are difficult to sell. In Mumbai, these would be typically in the price range of Rs 2 crore and above or completely at the other end of the spectrum, at Rs 5-10 lakh, in far-flung areas.
Since the bank’s intention while selling it is to recover its money and not to make a profit, it is likely the property will be cheaper than the prevailing rates for similar property in the same location. Naushad Panjwani, senior executive director, Knight Frank India, says: “The bank’s intention is to recover its money, which is the principal, outstanding interest and litigation charges, if any. Hence, a bank is not likely to haggle or negotiate over the price.”
In the auction notice, the bank will mention the minimum reserve price, below which it will not accept any bids. So, if your bid is higher than the MRP, there is a chance that you will get the property.
Devendra Jain, of NPAsource.com, a website that lists non-performing properties of banks that are for sale, says in most such cases the title of the flat is clear, since the bank has already done the due diligence before accepting it as collateral. If there are legal issues, websites like NPAsource.com also provide legal help.
Still, says Panjwani, it is better the buyer does his own due diligence, as there might have been some litigation or claimant for the property that came up after it was mortgaged to the bank and which the latter might not be aware of. Therefore, those interested should hire a lawyer to do a title search or put an advertisement in the newspaper. One should also get a No Objection Certificate from the housing society.
This will also bring to light any pending society charges, electricity bills, water tax, property tax, etc. It is possible the bank might not be aware of these charges and had set the MRP without taking these into account. In that case, the buyer can negotiate with the bank and the latter might agree to bear some of the charges. Usually, though, the bank sells the property on an ‘as is where is’ basis.
Another point is that all communication with the bank should be in writing; nothing should be just verbal. While handing over the payment, buyers must ensure it is going to the bank and not a representative.
“While buying a flat from an individual, you meet the seller personally. But a bank is a big organisation. So, be extra careful while handing over the payment,” Panjwani warns.
In fact, if there is a broker involved in such a deal, then one must be wary of it. While banks could appoint brokers to value the property, it is unlikely they’d appoint one to sell it, he adds.
Buyers must also ensure the bank has a proper court order in its name for taking possession of the flat and selling it. If not, there are chances that the original owner would challenge the transaction later.