5 Risks To Watch Out For Before Buying A Litigation Property Through Bank Auctions

Sonam Chandwani, FounderSonam has over seven years of experience working as an attorney with toplaw firms& business conglomerates, and specializes in M&A, Joint Ventures, Strategic Alliances, Private Equity, FDIs, Exchange Control Regulations, Securities Regulations and General Corporate Laws.

Sluggish economy, stagnant salaries and skyrocketing house prices yet nothing seems to curtail the dream of owning a home! However, if you are looking to acquire a property and make your dream a reality you don’t have to limit yourself traditional channels of searching real estate listings and working with real estate agents. You can look at properties being sold on auction. The benefits of buying at auction include expanding your options and possibly purchasing at a discount. You may face less competition to buy a property compared with buying the traditional way, but you’ll also be dealing with a different pool of potential buyers often, experienced investors. While repossessed properties sold by Banks may appear as a sleek deal, they come with their own set of risks.

When we talk about buying repossessed properties, we are talking about swimming in murky waters thus making it imperative need to make sure that it is clean as a whistle. Perhaps the biggest risk of buying at auction is that you’ll have limited knowledge of the properties for sale, making an expensive misstep a real possibility.

Some auction homes are a good deal, and others can be a big mistake.

So as to help you avoid the big mistake, this article shall explain important factors to weigh before taking the plunge in an auction property:

Outstanding Taxes & Society Dues: The most fearful fact about buying auction homes is that Banks sell such properties on ‘As is, where is’ basis. Simply put, the financial establishment will not be liable for any issues in relation to the said property in future. In such scenarios, it is likely that defaulter of a home loan, has also defaulted in the payment of local taxes and society charges. Through this auction, the
bank will, mostly, recover all the dues but the new owner will have to deal with other monetary responsibilities like amenities bill, municipal taxes, and others. New owners must ascertain outstanding amounts in respect of municipal taxes and society charges. For under construction properties, it is advisable to reach-out to the builder directly. Thus, get the liability numbers before bidding on such properties!

IT is imperative to hire a real estate lawyer who understands the quintessence of the market and make sure you understand what your responsibilities and liabilities will be if you’re the winning bidder

Property’s Physical Condition: The current owners might cease to properly maintain the property due to financial stress or in view of the fact that they will be disentitled from the property. Therefore, it is the new owner’s responsibility to visit the property and check for any physical maladies that might be present.

Multiple Loans: Banks may conduct due diligence with respect to properties, but there have been several instances of owner stealthily mortgaging properties to multiple lenders. It is highly recommended to conduct your own research by communicating with other stakeholders like the municipality, tax authorities and others to obtain crucial information about the land being sold. Further, it is advisable to get the ownership title deeds assessed by a lawyer. This may increase your cost a little, but prevention is better than cure.

Withholding Tax: Another important factor to take into consideration is TDS on purchase consideration. Pursuant to Income Tax laws, the home buyer has to deduct tax at source at one percent from the purchase consideration, when the property value exceeds Rs.50 lakhs. In other words, this applies to properties purchased through auction as well.

Illegal Occupants: Illegal occupants are yet another problem that can trail into as an aftermath of the property dealing. You as the owner have to ensure that the property that you are buying does not have pre occupied space or occupants living there. Customarily, the eviction of such occupants is the responsibility of Banks or the previous owners; however, they will end-up being your responsibility if not done so already.

History proves that such cases are never easy to resolve and have snowballed into huge legal cases where the new owner might risk violent retaliation from the occupants who are sued for eviction. The only way around this dilemma is to make sure that you do your checking of the property beforehand and take a keen note of the property’s construction quality as well as the age. The issue can be aided by the real estate agents in the area.

Furthermore, Maharashtra RERA boasts of having the most number of real estate projects registered under it across the country. Thus, interested property buyers can get facts checked at one single location the MahaRERA portal with relative ease. Also, home buyers can find details of a project stuck in a legal row along with the order passed on it. However, despite such availability of details, it is imperative to hire a real estate lawyer who understands the quintessence of the market and make sure you understand what your responsibilities and liabilities will be if you’re the winning bidder.