What are bank repossessed Properties?
Bank repossessed properties arise from borrowers defaulting on their home loan repayments to the extent that the home loan has to be terminated.
There are 3 different phases during which buyers are able to purchase these properties:
- Distressed Sales (DS)
- Sale in Execution (SIE)
- Properties in Possession (PIP)
The best way to understand the difference between the three is to understand the repossession process:
- The borrower defaults on their home loan to the extent that the only alternative for the bank is to recover the debt via repossession.
- The bank's attorneys will apply for a judgement at the magistrates court.
- Assuming the mortgage in arrears is not recovered, the borrower's movable assets will then be auctioned.
- If the sales from the movable assets will be auction still do not cover the mortgage in arrears, then the property is auctioned - a "Sale in Execution". Up to this point the owner may however try to sell the property - the so-called "Distressed Sale".
- Should the bank's reserve price not be met at the "Sale in Execution", the bank has the option to buy back the property itself - a "Property in Possession".
What are the benefits of buying a bank repossessed property?
Check the terms and conditions before you put in an offer, but usually:
- There is no transfer duty, which can be quite substantial (e.g. R25,000 for a R1 mill property)
- Home loans are more easily approved for PIPs. It is not uncommon for 95% or 100% loans to be granted, even in the current marketplace; again subject to terms and conditions.
- PIPs are perceived by the market to be good value for money (though not necessarily bargain-basement cheap).
There are other, softer benefits as well. The property may have been neglected due to the owner's financial predicament, so it may be in a state of disrepair. Consequently is may present a good opportunity for a fixer-upper home.
What should I look out for?
Whether you are looking at buying a repossessed house for investment or as a home, it is important to make sure that the property is situated in a good area. Area is extremely important; it is no good buying a bargain if you will never be able to sell it again because of the area.
The Electrical Compliance Certificate that must be obtained before transfer can take place is for the expense of the buyer. The purchaser also needs to obtain a certificate confirming that the property is free from infestation by timber destroying or boring insects.
Buying a house is a serious financial transaction. Do your homework and you could be getting the bargain of a lifetime.