Is purchasing a mortgaged property directly from a bank or a financial institution is a practical move?
By Ajay Gupta
When we search for a property to either reside or invest, we generally tend to look for newly-built or resale units, and predominantly on real estate portals. There is one more option on the menu that many are not aware of, or usually overlook due to the infamous defaulted or recovered property tag. But the reality is somewhat different.
For example, when a home-owner is unable to repay loans, the financial institution repossesses the property and auctions it to recover pending dues. Such properties are generally available at prices below the prevailing market rate. These properties are listed on the website of the financial institutions and banks.
Purchasing a mortgaged property directly from a bank or a financial institution is an extremely reliable move. It can save the buyer considerable amount of money and provide authentic value for money.
One may wonder how a recovered property put on sale can be any good? Well, there are plenty of reasons to give it a serious thought. To close a reasonable deal quickly, financial institutions often create an opportunity for a property/asset to be bought at a relatively lower price than the existing market value. The rate is quoted on the basis of distress value, instead of the prevalent market value.
This can be beneficial for investors who, many a times, end up paying 15-20% below the market rate. At the same time, buyers benefit with a clean title, and complete documentation and history of the property and its owners. There is also an added benefit—financial institutions have no interest in holding an asset for long, and in most cases, the property is already furbished with good records and ready to be bought.
Major financial institutions ensure 100% transparency while dealing with such properties in terms of cost and documentation. Even the eviction process is taken care of by the organisation. With no interference from brokers, such deals become more reliable and authentic, as the buyer is dealing with a reputed entity.
At the time of registration of sale certificate, the purchaser is entitled to get all the past original sale deed/title documents and its chain as a matter of right. As the announcement of such a deal needs to be published in widely circulated newspapers—one in English and another in a vernacular daily—all the concerned people get to know each move of the financial institution.
In addition, the buyer need not indulge in any due-diligence as the financial institution inspects all the necessary documents beforehand. Still, while dealing with a repossessed property, one must engage with professionals who can recognise the property’s value. The buyer must check if there is any pending litigation, if the title is clear, and if there are any unpaid maintenance charges.
The new owner must also ensure authentic property registration and obtain a no-objection certificate. It is the responsibility of the buyer to ensure she does not miss on this very important document. Investing in a repossessed asset can be a great deal as the main objective of the financial institution in a distress sale is recovering dues, and not to make a profit. A repossessed asset can also yield higher returns in the future.
(The author is executive director and chief risk officer, PNB Housing Finance)