Bank repossessed properties are the result of borrowers defaulting on their home loan repayments to the extent that the home loan has to be terminated.
These sales are attractive and seen as good value as there are usually no transfer duties and home loans are more easily approved by banks for properties in possession.
However, these properties have often been neglected after a degree of financial mismanagement by the owner. But it does hold the opportunity to score a bargain that can be well-renovate and then resold.
Reader Jade Harris recently contacted Property24 saying he is looking at buying property but is unsure about buying a bank repossessed property.
Harris asked for clarity on details he’s seen listed on some of these properties, such as “Easy sell’ or “Bank instructed to sell property by the current owner”.
“Does this mean there won’t be any hassles of evicting the current owners?” asked Harris.
Here’s what you need to know if you’re considering buying a bank repossessed property in 2020
There are 3 different phases during which buyers are able to purchase these properties:
- Distressed Sales
- Sale in Execution
- Properties in Possession
A borrower defaults on their home loan to the extent that the only alternative for the Bank is to recover the debt via repossession. The Attorneys representing the Bank will apply for a judgment at the magistrate’s court. Assuming the mortgage in arrears is not recovered, the borrower’s movable assets will be auctioned. If the sales from the movable assets auction do not cover the mortgage in arrears, the property is auctioned: a ‘Sale in Execution’.
Up until this point, the borrower may try to sell the property: a ‘Distressed Sale’
If the Bank’s reserve price is not met at the ‘Sale in Execution’, the Bank has the option to buy back the property - a ‘Property in Possession’.
‘Do your homework with repo properties’
But before you make an offer, you need to do your homework thoroughly, advises FNB Home finance.
This includes a physical visit to the property to check the condition.
"Get inside to do a proper inspection. Potential buyers should not buy a house that they have not seen as it might be vandalised,” says FNB, "In most cases there are people that stay in the property either as tenants or the previous owner or family."
Be cautious about the Protection of Illegal Eviction Act, commonly known as PIE Act, warns the bank.
PIE makes it the responsibility of the purchaser or buyer to find alternative accommodation for the people staying on the property at their own costs.
“In most cases people staying inside the property would refuse to vacate the house. The prospective buyer should also check if there are no outstanding amounts owned at the municipality.”
Keep in mind longer the property has been in possession of the bank, the more they would have had to spend on holding costs such as rates, maintenance and security. Having to settle large amounts related to these costs – could impact the asking price – so as a potential buyer it’s important to query this as these expenses should not necessarily be passed on to the new buyer.
If you're serious about buying a repossessed property, you will need to pay a deposit of about 10% as well as a Sheriff’s commission - calculated as a percentage of the purchase price.
To find out more about opportunities in the distressed property market click here.
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