Is it Right to Purchase a Foreclosed Property?
A foreclosure property is a piece of real estate that a mortgage lender sells to pay off a defaulted mortgage loan. Every foreclosed property is purchased in a public auction where the lender sells the property and anybody can purchase the property. It is a legal process that occurs when a borrower defaults.
Buying a foreclosure is definitely a bit of a grind, it is not that easy, but still a foreclosed property typically makes for a good deal because it comes at a high discount, but should one opt for it through real estate professionals. Foreclosed properties are the houses that are auctioned by banks to recover the loans that buyers fail to repay. Such properties are cheaper by 10–25 per cent of their prevailing market value. The bank that forecloses a property sets a reserve price while auctioning it. This is based on the price at which the property was bought and the outstanding loan on it.
It is the minimum amount that the bank will accept as a winning bid during an auction. One can easily get a property worth Rs 1.5 crore at a discount of Rs 15–35 lakh. These auctions are transparent and can now be conducted both offline and online with top real estate portal. Banks advertise these auctions in the local newspapers, inviting bids for property. The distressed property aggregators list the details of the property, price, auctioneering bank and date of auction on their websites.
In order to participate in an auction, you need to submit an application document, along with the bid value and earnest money deposit. Usually 5–10 per cent reserve price to the bank. The bank opens the bids on the date of auction and the biggest bidder is declared the winner. Once you win the bid, you have to pay the bank 25 per cent of the bid amount within 24 hours. The remaining 75 per cent has to be paid within 15–30 days, depending on the bank.