5 Things You Probably Did Not Know About Property Auctions
It would be mere repetition to say that you have to be careful while buying a property at a bank auction — the same due diligence must be done in any case. However, buying a property at a bank auction gives your certain benefits that you generally may not get. Following the same process, you could grab a great property at a bank auction that you may otherwise not have been able to purchase.
Now, let us clear certain doubts you may have about auction properties.
You may have to deal with squatters
Let us be certain of this one thing first. After the bank hands you over the property papers, you are the sole owner of it, its attached complications included. In case there are illegal occupants living in the house, it would solely be your headache to get rid of them. Unless, of course, you visited the premises and made sure that it lies vacant, you may have to face unwanted guests upon your arrival in the house. To make matters worse, the responsibility now totally lies will you to rid your newly acquired property off of the squatters. The former owner of the property may have let this property on rent, and the tenants may refuse to vacate the property.
Also read: Legally Speaking: How Do Property Auctions Work?
You can buy the property after a failed auction
As an aware citizen, you do know that in the recent past high-profile property auctions organised by banks failed to elicit a response from the public. Attached properties of debt-ridden businessmen such as Subroto Roy Sahara and Vijay Mallya have not been able to find takers despite the best of the efforts made by lenders in this regard. They have been organising repeated auctions to recover their dues from the above-mentioned business houses. What you may not know is the fact that the end of the auction does not mean you can no longer buy a property that a bank has been trying to sell through an auction. In case your mind is made about a property, you could personally go to the bank, express to them your desire to buy the property and make it your own. However, it would entirely be the bank's discretion to sell the property.
You may lose your earnest deposit
Always remember that you need to have ready money to realise your dreams of buying an auction property. As a standard practice, banks make bidders submit 10-15 per cent of the reserve price of the property as an earnest deposit. In case you win the bid, you will have to deposit with the bank another 15 per cent of the reserve price of the property with the bank within two days. The remaining amount also must be paid within a month's time. In case you fail to arrange funds within the stipulated time, you may have to forfeit the earnest deposit. In case you are planning to buy this property using bank finance, you will have to be ready with a pre-approved loan. Also, it is important to note here that not all banks agree to finance a foreclosed property.
Bank cannot re-claim the property
Among the many questions that cross a buyer's mind is the question, can the bank re-claim the property in future? The answer is no. Recently, the Calcutta High Court has ruled that a bank which sells a mortgaged property has no interest in it after the issuance of the sale certificate.
Giving its verdict in the United Bank of India versus State of West Bengal case, the HC said: “After the sale, the secured creditor can no longer claim a security interest in such immovable property as such security interest stands dissolved by the issuance of the sale certificate. The title to the immovable property stands transferred to and vested with the purchaser. There remains nothing more to be done by the secured creditor in respect of such immovable property.”
Also read: Planning To Buy Property Via Bank Auction? Keep These In Mind
Withholding tax applies on auction properties, too
Following the legal procedure, the buyer of a property, which is worth Rs 50 lakh or more, has to deduct one per cent of the agreement value as withholding tax on behalf of the Income Tax Department. This amount has to be paid as tax to the I-T Department by the buyer. In case you fail to factor this amount at the time of purchase, you may end up paying it from your own pocket. What if there are pending utility bills, too? Well, you are not liable to pay that, says the Supreme Court. The apex court has ruled that the buyer of an auctioned property will not be liable to pay off the outstanding dues of the previous owner.
Also read: Legally Speaking: Recent Court Rulings Homebuyers Should Know Of