Real Estate

Things to keep in mind if you are buying an auctioned property

A sluggish economy, stagnant salaries and sky-rocketing real estate prices — yet nothing seems to curtail the dream of owning a home. If you are looking to acquire a property, you don’t have to limit yourself traditional channels such as real estate listings and looking for agents. Keeping track of properties on auction is another way to go.

The benefits of buying at auction include expanding your options and possibly purchasing properties at a discount. You may face less competition when compared with buying the traditional way, but you will 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 to make sure the process is clear. 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.

Here are five pointers to keep in mind:

1. Outstanding taxes and dues

The most fearful fact about buying auction homes is that banks sell such properties on an ‘as is, where is’ basis. Simply put, the financial establishment will not be liable for any issues related to the said property in the future.

In such scenarios, it is likely that the defaulter of a home loan has also defaulted in the payment of local taxes and society charges. Through this auction, the bank will (in most cases) recover all the dues but the new owner will have to deal with other monetary responsibilities like amenities bill, municipal taxes, etc.

New owners must ascertain outstanding amounts with respect to municipal taxes and society charges. For under-construction properties, it is advisable to reach out to the builder directly.

2. 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 dis-entitled from the property. Therefore, it is the new owner’s responsibility to visit the property and check for any physical maladies that might be there.

3. Multiple loans

Banks may conduct due diligence in respect to properties but there have been several instances of the 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.

4. Withholding tax

Another important factor to take into consideration is the TDS on purchase consideration. Pursuant to income tax laws, the home buyer has to deduct tax at source at 1% from the purchase consideration, when the property value exceeds ₹50 lakh. In other words, this applies to properties purchased through auction as well.

5. Illegal occupants

This is yet another problem that can trail into as an aftermath of the property dealing. As the owner, you 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 checks beforehand and take note of the property’s construction quality as well as its age. The issue can be aided by the real estate agents in the area.

For instance, Maharashtra RERA boasts of having the most number of real estate projects registered under it across the country. Buyers can find details of a project stuck in a legal row along with the order passed on it.

However, despite the availability of such details, it is imperative to hire a real estate lawyer who understands the quintessence of the market and to make sure you understand what your responsibilities and liabilities will be if you’re the winning bidder.

The writer is the founder of KS Legal, Mumbai

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Printable version | Feb 26, 2021 4:33:14 AM | https://www.thehindu.com/real-estate/things-to-keep-in-mind-if-you-are-buying-an-auctioned-property/article30212403.ece

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