K Ramanathan
Foreclosure, the
word we heard frequently in the media a few years back in the midst of economic
crisis that struck the world. Many home loan borrowers in the US in particular
had declared bankruptcy for they were unable to pay EMIs due to loss of
employment or reduction in salaries.
Many lenders (banks,
financial institutions), who had given home loans indiscriminately on high
interest rates in the upswing real estate market, had to suffer due to sudden
crash in real estate prices and loss of payment means for the borrowers, who
had no option but to surrender their property to the banks for foreclosure.
There became the
word a most talked-about in the US and other European countries. Foreclosure is
an option given by a borrower to the banks, who could take back the property
using court system if the borrower failed to honour the agreement of paying
back the loan as per the agreement. The bank, once get the possession of the
property can sell it at the market price and pay back the difference, if any,
to the defaulter.
The greatest
disadvantage for the defaulter is that his credit rating will get a beating and
he will not be given loans by any financial institutions for his future
needs. However, if the amount collected
through ‘auction’ of the property by the bank is much lower than the balance
loan amount, then the bank has the right to ask sureties, who stood by the
borrowers at the time of signing the loan agreement, to settle the balance loan
amount. In case, the bank was not able to realise the loan amount fully through
auction or surities, it can take possession of other immovable properties of
the defaulter like jewellery or valuable items equal to the standing loan
amount.
Now, if one wants to purchase a foreclosed home there are
certain advantages and disadvantages. One has to take several things into
consideration before deciding to buy a home on auction by banks.
The greatest advantage is low price. The banks, which are
selling a property, will have their own interest to realize the outstanding due
amount with interest only. The lender thus, would be ready for negotiating on
the basic prices of the home under auction.
So, those who wish to buy the bank property can bargain and even seal
the deal for a lesser amount than the market price.
If one chooses to sell the home later, he or she will most
likely to make a good profit as the buyer would have paid less amount at the
time of auction. Many in India do buy such houses at a foreclosure auction,
make necessary changes or repairs and then sell it and book profit.
Secondly, since the bank is selling the property, there will
not be any encumbrances against the property and the sale deeds will be clear.
So, the buyers need not have to unnecessarily spend money on legal charges. Thirdly, the buyer gets the ready-to-move in
house with, may be, with little bit of repair or alternation works.
On disadvantage part, the buyer has to pay money in cash and
will not have time to go for bank loan as banks selling such properties would
want to realize the money at the earliest. Secondly, the previous owners,
sensing that their property will go under the hammer, may do damage to their
building, which can cost dearly for the buyers at a later stage. Thirdly, the
buyers seldom get a chance to inspect the property with experts to understand
the structural stability and other quality details.
So, it is a big risk he takes when he buys a property from banks,
whose quality he is not aware of. On
physiological part, the buyer should be aware of the fact that he gains the
house at someone’s expense. Those who believe in vaastu and other structural
measures prescribed by Hindu scriptures may find most of the houses do not
comply with those standards
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