Point to keep in mind while buying property in an auction / e-auction from Banks/NBFCs

Banks or Non Banking Financial Institutions (NBFCs) funds loans against property taking property as a collateral security. In case of default in repayment of loan as pre- decided and agreed by borrower, Banks or NBFCs, after reasonable reminders as mentioned in SARFAESI Act.

Banks auction such properties in a final attempt to recover whatever value is left in these assets. Most of the properties that are being auctioned are owned by borrowers against whom the bank has initiated recovery proceedings. Banks seize properties when they are convinced that the borrower will not be able to repay a loan. Given the trouble faced by Banks in selling such properties, they are usually available at a discount to market price.

There is a possibility that some of these properties are in litigation. Potential buyers would be well advised to do sufficient due diligence and verify the details of the property before bidding for it.

Point need to be kept in mind while purchasing property under Bank Auction:

• check if there are any liabilities associated with the property that is being auctioned. Liabilities includes dues with society, Municipal Taxes and other statutory duties/taxes as per local & central government including electricity dues and professional taxes dues (in case of commercial usage properties)
• Property should not be occupied by any tenant. It should be vacant and available for possession post auction process get complete
• Check government revenue records like Property Card and 7/12 Extracts to ensure property is not having any encumbrances other than loan from Auction Bank.
• Get Clear Title Report (TSR) from a experience and renowned lawyer to ensure property is free from any defect in tile of property.
• Get property inspect by government approved technical consultant to ensure construction quality of property and construction has been done as per approved plan and bylaws of local government.
• While buying the house in an auction done by a bank, a purchaser needs to look at whether the auction is via symbolic possession or the bank is having physical possession of the property. In case there is only a symbolic possession, the purchaser needs to wait for some time for the bank to give physical possession by obtaining it through a court procedure.”
• Get pre approval of loan from bank before you pay IMD cheque in Auction to purchase property. There are only few Banks/NBFCs who provide loans on property purchased on Auction.
• Buyer should collection, collector/ specified authority order for possession of the property along with Auction order and registered sale deed in favour of buyer executed by Authorised officer of Bank along with other title documents deposited by defaulting borrower of bank at the time of taking said loan from Bank/NBFC

Please note: Banks are also under a legal obligation under Rule 8 (6) of Security Interest (Enforcement) Rules, 2002 to disclose any known material defects relating to the properties and also defects in owner’s title that a bidder cannot with ordinary care discover.

An individual looking to buy a property in an auction must have a clear understanding of how the payment plan will work.  A potential buyer is required to deposit a certain sum called the “earnest money deposit” (EMD) to participate in the auction. This amount typically varies between 10 and 25% of the property price.

There is a duty cast upon the banks/NBFCs under clause (9) of Rule 9 of The Security Interest (Enforcement) Rules, 2002, to handover possession of the property to the purchaser free from encumbrances known to the secured creditor on deposit of money as specified in sub-rule (7). The interest rate that will be payable to the buyer in case of refund depends on the case to case basis where banks/NBFCs fails to give possession to the buyer.