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Buying house in a bank auction? Take care of additional costs

Amit Shanbaug, ET Bureau Apr 15, 2013, 10.13AM IST
(The bank usually offers…)




What to check


Are there unpaid dues?

When a bank auctions a property, it is sold on an 'as is where is' basis, so you should read the bid document carefully to find out if there are any unpaid dues. "The bid document is like the prospectus of an IPO, where all the facts covering the legal title and responsibility for pending dues are stated," says Om Ahuja, chief executive officer, residential services, Jones Lang LaSalle India.

In most cases, the owner is not in a position to pay the dues to the bank and knows that the property will be seized. So he doesn't bother to pay the associated fees, such as the society maintenance charge or property tax. From the time he receives the first notice till the property is taken over, there is a minimum period of six months. This means that if you buy the house, you will probably have to pay at least six months' worth of outstanding dues.

Obviously, the utility bills are also unlikely to have been paid. It's possible that some utilities have been disconnected or discontinued, such as the removal of the electricity meter. So, you will have to pay for renewing the connections, along with the late fee, if any.

How much repair work is needed?


Also, as the property is being sold on an 'as is basis', you will be responsible for any damages that may have been caused directly or indirectly to other properties around it. For instance, if there is water seepage while the house is in the bank's possession and this damages an adjoining property or the one below it, you, as the new owner, will have to pay for it.


Says Ahuja: "Typically, the bank will decide about it after considering the outstanding amount. The ownership of the contents of the property are usually mentioned in the bid document." However, it doesn't hurt to have a clarification to avoid any unpleasantness in the future if the previous owner lands at your door to claim his items.

How much will you have to pay immediately after the bid?

Banks fix a higher down payment for the houses that are auctioned. This is usually 20-25% of the selling price and has to be paid immediately after you place a successful bid. Though a bank has no rule about where you source your home loan, it could help you haggle for the lower end of the down payment range or get a better interest rate if you take it from the same bank.


If the final price (after taking into account all the additional costs) is lower than the market price, you have obviously landed a good deal. However, you shouldn't mind even if you have to pay a bit more. This is because you can be sure the property is a safe bet as the bank would have checked all the documents thoroughly. Besides, you will probably get a house in an established residential location.