Summary of this article
Think twice before buying properties through bank auctions
Such properties might incur legal trouble later one, if not clarified properly
Make detailed legal verification and inspect the physical condition of the property
Buying property through a bank auction often seems like a smart financial move. But Abhishek Kumar, a Sebi-registered investment adviser, recently shared a post on LinkedIn, stating that the idea of owning a home at a below-market price appeals to many buyers looking for a "good deal." The ground reality, however, can be a lot more complex than it looks on paper.
Kumar recounted his experience of looking at a flat that seemed like a great opportunity. The original owner had died five years back, and the property was locked and sealed by the bank after loan defaults. However, what seemed to him to be a reasonably affordable investment was actually stuck in a family dispute between the owner's wife and relatives, leaving the property tangled in legal uncertainty.
This brings a key lesson for anyone eyeing bank auction properties: not every discounted property is risk-free.
Legal Risks Do Not Disappear at Auction
The ownership or succession disputes, even if the bank takes possession and lists it for auction, do not just disappear. Very often, family members of the deceased borrower later claim "their share" of the property, pulling the new buyer into prolonged court battles.
Kumar says buyers almost always feel that once a bank takes over the property, the title is clear. True enough, but not always. Any pending dispute in civil or family court can invalidate the sale afterwards. He warned that such cases could drag on for years, taking away time, money, and peace of mind.
Therefore, it is advisable for buyers to involve a real estate lawyer before placing a bid, owing to pending court cases, unpaid dues, or even encumbrances (a third-party legal claim on a property that affects the owner's ability to transfer the ownership of the property). A clean title and clear ownership trail are essential before even considering participation in an auction.
Auctions Rarely End at the Starting Price
Most buyers attend bank auctions in hopes of purchasing properties for the reserve or base price determined by the bank. In actuality, this is rarely the case.
Kumar explained that the reserve price is only the minimum figure fixed by the bank based on valuation. When there are multiple bidders, the sale price can increase sharply. Hence, the "discount" that attracts buyers often disappears once competitive bidding begins.
He also mentioned that auctions require earnest money deposits and tight payment schedules. Bidding in excess of one's financial limit creates liquidity pressure or even a loss of deposit when full payment cannot be made within the deadline.
Vacant Flats Can Stay Locked For Years
When auctions are done, it can be very time-consuming and frustrating to actually take possession of the property. Many auctioned properties remain sealed or are still occupied by former owners or tenants who refuse to vacate.
Vacant flats often deteriorate while being kept locked for years. Essential utilities like electricity and water connections may have been disconnected, and, besides, unpaid maintenance or property taxes may have accrued over time. Repairing and restoring such properties adds to unforeseen costs, thus nullifying the benefit of whatever advantage in price arises at the time of purchase.
Future Claims Can Create Long-Term Headaches
Another problem Kumar pointed out is that previous owners or their relatives sometimes try to reclaim the property, even years after it had been auctioned. If there is any ambiguity in ownership or if the bank has not followed all the procedures for recovery correctly, such claims can create serious complications.
He suggests that the buyers should carefully scrutinise the auction documents, which include the possession notice and valuation report, provided by the bank. Equally important is the independent check on the chain of ownership to ensure that there are no outstanding claims or third-party rights.
Due Diligence Is The Only Real Bargain
While bank auction properties seem very attractive because of their lower prices, as appears from Kumar's experience, they require more care than usual transactions. A buyer needs to make detailed legal verification, inspect the physical condition of the property, and ensure that all dues are cleared before committing.
Kumar summarised it in his post: "Want a deal? Go in with eyes open. Do a thorough legal check. Be ready to walk away from what looks like a bargain."
