Bank Auction is bit tedious process. In my previous post, Bank Auctions – The Cheaper and Smarter way to buy your dream house i discussed some of the do’s and don’ts related to Bank Auction. In this post, i will discuss the Bank Auction Process in detail. Currently Bank Auctions are hijacked by some agents. Agents charge hefty commission in this whole process. I never suggest to go through agents as the probability of cheating is high through agents. Specially in Mumbai, all my clients prefer to buy bank auction property through agent and willing to pay x% through cash during Bank Auction Process. Desire to buy a property at discount overlook the risk associated with it. As i always suggest that it is illegal to pay through cash in any property transaction. I request all my readers to directly participate in Bank Auction without any intermediaries. Infact recently banks launched e-auctions which is more transparent and convenient.
Why Property is Auctioned?
I know that you all know answer to this Que that property is auctioned because borrower defaulted on payment. Normally bank auction process is initiated when borrower default on 3 consecutive Home Loan EMI’s. A notice is served to the customer to respond within 60 days that why the bank should not initiate a auction of property due to default in payment. Borrower can pay the installments and this notice is withdrawn. Otherwise Borrower can submit his objection within 60 days with justification for non-payment of EMI. In case, no reply is received from borrower or bank is not satisfied with the reply then bank can initiate bank auction process. Once this notice expire after 60 days, bank can auction the property after 30 days.
Steps to Buy Property through Bank Auction
Step 1: Search for Bank Auction Property
This is one of the most painful step as there is no organized data in India. You may find some sites providing information on Bank Auction Property. This information is normally available on chargeable basis. These sites are not updated regularly. The other sources of information are Newspapers, Notice posted in Bank Branch or Notice posted in the Society. You can also check auction notice on website of Asset Reconstruction Company like ARCIL. It is advisable to narrow down your search so that it will be easy to search the property. For easy search, i suggest that instead of paying for search to get complete details, you can search for Bank Auction Property on these online sites. Note down basic details including Bank name and then either visit the bank branch or search for auction notice through banks website / newspaper.
Step 2: Check Property Details
Once you shortlist bank auction property, carry out preliminary check on our own. Check market price of the property, obviously reason for bank auction is payment default but check out any legal dispute, bank auction related details and how can you participate in bank auction.
The biggest problem with Bank Auction is that you will not have get access to property papers before purchase for title search. Banks are not willing to share much information. Sole objective of bank is to dispose off the property. If you are seriously interested in buying the property then it is advisable to hire a lawyer or expert for this process. One important point to check is Balance outstanding of the defaulter. In many cases balance outstanding is much higher compared to Reserve Price. Please check if the property is auctioned at amount below balance outstanding amount then how bank will recover the balance amount. In such scenarios, defaulter has to pay the balance amount but better to clarify. If final bid amount is more than outstanding amount then balance amount is paid to the defaulter by the bank.
Step 3: Physically Inspect the Property
It is advisable to physically inspect the property. Now a days banks have started mentioning the inspection date and time in auction notice. You can visit the site at designated time to inspect the property. In e-auction notice you will find the contact details of concerned officer. It is advisable to contact him and get all the details. Now one good thing is that if bank is organizing physical inspection then it means bank has physical possession of the property. It is always advisable to buy property where bank has physical possession. In case of notional or symbolic possession, winner of bank auction process will struggle to get the possession. After auction bank will be totally non-cooperative. In some cases, it may take years to get physical possession or you may need to file a court case to get physical possession.
Step 4: Submit Tender Form
In this step, you can collect Tender Form and you should deposit EMD (Earnest Money Deposit) along with Tender form. EMD is normally deposited through Banker’s Cheque or Demand Draft. Please check all details in tender form and submit your tender before the Tender Closing Date. Along with Tender form, bank also demand KYC documents. As the time is very short therefore you should arrange all documents well in advance. One of the most common reason for rejection of tender form is incomplete tender form i.e. either KYC documents are not available or Tender form is not filled properly.
Step 5: Bidding
There are multiple ways of submitting your bid. You can submit your bid through bidding form. In most of the cases Tender form and Bid form are one and same thing. In short, you can submit bid through tender form. You have to submit separate Tender form / bid form if you wish to submit multiple bids in “multiple of increase in bid amount”. In some cases, Tender form is submitted physically and bid is submitted online through separate Bid form. Competitive bidding is allowed by bank in certain cases among the bidders to increase the final bid amount. In e-auction, you can bid multiple times during the window of e-auction. There is no standard bidding process except for e-auction. It is at the sole discretion of the bank.
Step 6: Auction Date
On auction date, visit the site / bank / auction venue to check whether you won the bank auction or not. If bids are submitted through tender form / bid form then bank will open all the eligible bids in front of all bidders. Highest bidder is declared winner of bank auction. If you win auction then you need to deposit 25% of the bid amount within 24 hours including EMD deposited with tender form. Balance 75% of bid amount should be deposited within 15 to 30 days from the date of bank auction. If you are planning to avail Home Loan then it is advisable to apply for Home Loan from the bank which has auctioned the property. Normally home loan is risky proportion and most of bank auctions are closed without Home Loan. Banks are not willing to lend on foreclosed properties. I will not suggest to depend on Home Loan for such properties because of tight timelines.
Step 7: Sale Certificate
After the balance 75% payment is made. You will receive Sale Certificate from Bank but title transfer is incomplete till you register sale certificate in sub-registrar office
Step 8: Register Sale Certificate in Sub-Registrar office
You can register Sale Certificate and should insist on inclusion of defaulter as confirming party as i explained in my previous post on Bank Auctions. The sale certificate should be signed by the authorized bank executive at the time of property registration.
Important Points related to Bank Auction Process
1. Bank Auction is scheduled after 30 days from the date of Auction notice. If defaulter pay the money to bank in between then bank auction process is cancelled.
2. If you win the bank auction and do not pay balance amount within specified period then your entire paid amount will be forfeited by the bank.
3. Properties auctioned by PSU banks are cheaper compared to properties auctioned by Private banks.
4. Last but not the least, Please avoid aggressive bids during bidding process. To take care of this point, you should have fair idea of current market price of similar properties.
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