Pros and Cons of buying bank owned properties

Chennai: We have seen banks/financial institutions advertise auctions to sell hypothecated properties after the borrower defaulted the loan payment. Does it safe to buy bank owned properties? What are the legal implications and safety measures attached with such buyouts?

Banks generally take the possession of the property it had lent to the borrower once the later failed to honour the loan agreement. Banks give enough time to the borrowers to pay back the standing loan amount but if they by any reason announce bankruptcy, the financial institutions issue notice to the loan takers informing them of the impending auction of their premises and give enough time to vacate the houses to facilitate selling of the property to realise the unpaid loan amount.

There are advantages and disadvantages in buying bank owned properties. If we see the advantage part, the first one is about the possibility of getting the ready to move in house for the buyer. He can get the house by paying the amount to the bank and take possession of the keys within say, one month.

Secondly, banks want to realise the amount it had loaned to the borrower. Generally, the amount would be much less than the full market value of the property. More so, since a few years had elapsed, the value of the property would have gone up. But still, the buyer can make a good deal by doing hard bargaining to get the house at a price much less than the prevailing market value. Thirdly, the buyer can choose the house at a good location from the list of properties available under banks’ auction. The area would have been well developed with all basic amenities.

Lastly, buyers need not have to worry about the genuiness of the property, as the banks would have checked all papers of the home thoroughly by their own lawyers. Hence, the properties under banks’ auction will have less chance of having legal problems or any sort of encumbrances.

One of the major disadvantages in the bank owned properties, however, is that buyers will have no authentic information about the quality of construction of the property gone under the hammer. The buyer will not have much time to check the quality of the building. Even the building was constructed by a well-known builder, no guarantee would be given about the quality of the building at the time of auction.

Also, the buyers will not have the privilege to have the home of his choice. He has to spend a lot to alter the home according to his taste and design specification. By doing so, there is a possibility that the construction may go week.  There may also some permanent damage incurred by the outgoing owner, which the present owner would only come to know after purchasing the property.

The purchaser has to buy the property by paying the amount the defaulter is owing to the bank in cash. Since the amount is quite significant, the purchaser has to make arrangement to pay the amount in cash at a stipulated time.

But if one sees the pros and cons of buying the bank owned the property, it is prudent to analise both sides before deciding to sign the purchase agreement.