The Money Show with Mr Raj Khosla | Avail Maximum Discounts on Auctioned Homes

Ms Mubina Kapasi of ET Now touch-bases with MyMoneyMantra Founder and Managing Director, Mr Raj Khosla for his expert views on how to derive maximum savings buying a repossessed property under the bank auction for a special edition of the program “The Money Show.”

Here are the excerpts from the interview:

How can one save a few Lakhs worth of Rupees while buying a property that could actually cost you 1 Crore. Well, you can buy a repossessed house on discount and save a huge amount. But what are the Repossessed properties? A repossessed residential property is available for sale at the bank auction. It is essentially a home seized by the bank after the previous owner has defaulted on the payment and lender now seeks to sell the property to recover the money. It could be in the form of auction or public sale. You must have read about such properties on sale in newspaper.

Let’s touch base with the expert, Mr Raj Khosla who is Founder & Managing Director of MyMoneyMantra. Mr Khosla will guide us on how one can process transactions involving repossessed properties and how one can make maximum savings on such deals.

1. Thank you so much for joining us Mr Khosla. To start with, do you think buyers should look at buying repossessed properties? What advantages does it have over buying a regular property?

Mr Khosla:

It is only 5 % of Secured Loan which go bad and therefore eventually end up on the market for re-sale. It is a very low percentage. So we are talking about a low universe to start with.

The biggest advantage is: 20-40% discount on property. Seeing that property prices are already depressed and a further 30 % of discount can end up being a bargain of a lifetime for the buyer.

2. What sort of discount figure on current value one can expect from a repossessed property?

Mr Khosla:

As a rule of thumb, discount figure should be a minimum of 30 per cent of market value. Making a repossessed property a success involves a lot of work and thus I would say, a buyer is entitled to at least “30 per cent” of discount.

3. How can one extract the best value from a purchase of stressed property at the bank auction?

Mr Khosla:

For the sake of simplicity of viewers, let’s take an example of Rs. 1 Crore worth of property, involving typically a 2 bedroom flat that is repossessed. Same rules may apply for warehouses and farm land, but we will discuss a residential unit here.

• First thing you have to do is to figure out your own finances. Before going in for an auction you need to have arranged the money beforehand. You would require money in terms of in-principal loan approval from the bank besides assess the cash you have in hand. You must know how much you can borrow basis your credit rating and other factors. Prior the auction, have a ballpark figure in mind and know how much money you possess.

• Second, is to assess the title of property. Always get hold of a good lawyer for this. Although the bank is auctioning the property under the SARFESI Act but the owner is still the owner and not the bank. So, investigate if the owner has a clear title. Go to central registry and find that. It is very important to ensure that there is no other loan on property. You need to ensure that the owner has not mortgaged the property to some other institution.
• Next get the appraisal of property’s condition done. Whenever one begins to default, chances are high that he tends to not upkeep the house. When someone knows that he is going to lose the property any day in future, the maintenance becomes difficult. It is thus most important to thoroughly appraise the condition of the property. You must know how much more money would be required to actually live in the house after the purchase.

4. Thank you Mr Khosla for highlighting various cautions and precautions involved. But what happens when there are more than two parties involved?

Mr Khosla:

• It will be a tripartite agreement involving the Owner, the bank & the self.
• Try to get the owner as a Confirming Party to this entire agreement. You do not want any niggling property, a legal dispute. You don’t want to buy a problem you want to buy a house.
• Most important, whereby is to get an indemnity certificate from the bank as it will protect you from any legal charges that owner may take as an afterthought.
• Try and put a Penalty Clause. So, in case the owner decides to back off last minute and says he has the cash and wants close the agreement, he is not allowed to make such claim. You have invested money & time and there should not be any possibility for such kind of situation.
• In case there is a society involved, get no objection certificate from housing society. Who knows what litigation the owner may have with the housing society for this the property. So it is important to get an NOC for your own safety.
• If transaction is more than 50 Lakhs, 1 % TDS is deducted & deposited in the permanent account of the owner of the property.

Keep these things in mind. It may sound a bit tedious task, but a lot of people have gained tremendously from such transactions.

• Read auction document “fine print” carefully. Make Lawyer read the document.
• Sometimes you like a property a lot but before you get into auction process, remember you must have an upper limit in mind. Don’t let your emotion let you bid higher than what you have in hand. Always have calculative bids in place. You need to keep your emotions in check all the way through the bidding process.

If you do all of this, you stand to gain a lot. You may end up buying a 3 bed room flat at the cost of 2 bed room flat.

5. What one typically notices is that many of these properties that are auctioned are cornered off by High Net worth individuals as they have links with the banks. Let us understand, do a regular buyer stand a chance at all?

Mr Khosla:

Yes, indeed they do. The steps discussed here should be followed to successfully close a deal at a bank auction for buying a repossessed property. The checklist should be looked upon carefully and this task should be considered as a full time job. May be one may not get it for the first time or the second time, but certainly within 6 to 12 months of constant work in this direction can easily help one land up with a very good repossessed property deal.

6. What care one should take so that they do not end up in a legal tangle?

Mr Khosla:

After following the checklist you are covered from all legal tangles. If at all, there could be only frivolous ones, coming from legal abuse one decides to make and prolong the inevitable.

Indemnity from the bank will be the most important document in such circumstances. The bank has to indemnify you against any such incidences. It covers you for your rights. With indemnity document, you make the bank party for the cover. Make seller the confirming party. It covers you from all bases.

This was an exhaustive explanation around all the things surrounding purchase of repossessed properties, what are the risks involved, and what are the preventions to waive off those risks. Thank you so much Mr Khosla.