A foreclosure is said to have occurred when a homeowner is not able to keep up with his or her mortgage payments. This is the ultimate and final recourse for a lending organization and is taken only after all other attempts to work out through the financial difficulties of their customers fail to produce the desired results. As the last resort, the lenders take over the administration of the properties and then sell them to new buyers for recovering outstanding balances. In numerous cases, foreclosure homes have not been well maintained by their cash-stripped owners which lead to their distressed and dilapidated condition. To get them into their earlier health, they are needed to be repaired and taken care of. Due to this reason, such properties come to the market at prices that are much below their actual assessed values.
The process of selling and buying foreclosure properties is mostly carried out by a bank through online methods and complete transparency is maintained at all times. The banks advertise about foreclosure properties in newspapers and other media platforms. If you are looking to buy a foreclosure property, you can also go and visit such a house with the bank officials. The bank sets a particular reserve price while auctioning. This is done by taking into consideration the actual price of the property when it was first bought and the amount of loan that is due. So if there is a house that costs around 1 crore, the reserve price may range anywhere between Rs 75 and Rs 90 lakhs.
While buying a foreclosed property, you should also prepare yourself about the inherent risks associated with such deals. You should always evaluate the deal closely and consider all points before you sign the documents, as it involves risks that are much different from buying resale properties. Make sure whether the property that you are opting for is preoccupied by others or not. If this is so, then a successful bidder is going to be responsible for getting the old occupants out of the property. These old occupants may or may not be the ex-owners of the property. The occupants can be of any type, including squatters and the new owners will need to get them evacuated from the property. There can also be certain legal disputes or other claims associated with the property. A financier is not going to indemnify a buyer from these. Moreover, there can also be risks of retaliation by tenants when they have been sued or penalised for eviction.
The buyer should also inspect the whole property before buying it and gather information about its age, quality of construction and layout as well as other details. The buyers can also approach any reputable real estate agent within the nearby area for gathering such information. If you are looking to buy a foreclosure property, you should decide on the price based on such information that you would have gathered. You should also consider the additional costs for repairing and renovation.
In many cases, property buyers are really not aware of the fact that income tax department has issue a withholding tax on the property sales. This law states that a buyer of a property that is worth Rs 50 lakh or above has to deduct withholding tax of 1% of agreement value and then deposit it to the government. A buyer will need to collect the tax from the owner of the property on behalf of Income Tax department. Therefore it is necessary to clarify the taxation clause with the bank before bidding. If not done, then a property buyer will need to pay for the tax amount from his or her own pocket.
Ankita Aggrawal is a business architect in real estate industry. She has 5 years of experience and she has got knowledge about various real estate projects including North Bangalore Villas Bangalore, commercial properties,Residential properties,bunglows, Villa Projects in Bangalore