Author: Shelley Orgill
Purchasing a property is an expensive asset and a bargain never hurt. The bargain referred to is that of a repossessed property. A repossessed property may be purchased in the following phases:
- In a distressed sale whereby, the owner sells the property prior to the bank repossessing the property;
- Sale in execution whereby the bank publicly auctions the property in an attempt to recover their losses; or
- Property in possession where the bank has bought back the property where no sufficient bids have been made.
A sale in execution occurs when a bank home loan is in significant arrears and the bank consequently obtains a court order whereby the sheriff of the court is instructed to publicly auction the property. This will only occur should the bank have no other alternative after many requests for payment has been made. A bank representative will attend the auction and subsequently purchase the property in the event that the biddings are not considerable enough to cover what is owed to the bank. As a result, the property is repossessed by the bank at the sale in execution.
Upon purchase of the property by the bank, the bank becomes the registered owner. At this point, the bank may either sell the property to recover their losses or allow the previous owner to rent the property on a month-to-month basis.
As a purchaser a few advantages to purchasing a repossessed property are listed below:
favorable purchase prices
Due to the often-urgent and last resort nature of a sale in execution for the bank to recover the money lent to the previous owner, such properties are often favorably priced, as the bank is not seeking to make a profit but rather to recover their losses.
No transfer duty
In the case of a property sold in execution, no transfer duty is payable as the bank is a VAT vendor. Where no bids are received above the reserve price, the bank will purchase the property. However, a successful bid requires a 10% deposit and sheriff fees to be paid immediately. Thereafter, upon transfer the attorney and registration fees will become payable.
Municipal accounts are settled
In bank assisted sales, the bank will settle all arrear municipal rates to date of registration or occupation. However, in the case of a sale in execution the purchaser is liable to settle all outstanding rates on the property.
On the flipside, purchasing a repossessed property has its disadvantages such as:
Maintenance and repairs
Often repossessed properties are in a state of deterioration either due to poor maintenance by the previous owner or the repossessed property had been vacant and as a result been subject to vandalism. This is a significant risk as often times viewings of these properties are limited. Purchasers would need to consider the purchase price as well as renovation costs in order to determine whether the repossessed property is an investment or a money trap.
Restrictions on viewings
Difficulties in viewing and assessing the property usually arise where the owners are still occupying the property. In considering this, research should be conducted to determine the market value and the rates and levies you could expect to pay.
Occupation by tenants
Where the property is occupied by the owner or tenants, it is the responsibility of the purchaser to formally request the occupants to vacate or to start the formal eviction process, which is a burdensome and costly process as an attorney would need to be consulted.
On the one hand, the attraction to purchasing repossessed properties lies solely in the affordability of the property. However, purchasing a repossessed property does require extensive analysis on the part of the purchaser as there may be obstacles and considerations such as whether the property is worth the time, effort and money. The location of the property is also an important aspect to consider.