When owning property, you hope you will never come to the position where your home or business is re-possessed. On the one hand some see these types of properties as an opportunity to buy a bargain. The property unfortunately becomes re-possessed when an owner is unable to make repayments on their home loan and is in severe arrears. The lender, which is usually a bank can then legally serve the owner with a summons. The banks, who are represented by their own lawyers, will achieve this by applying for a judgment, which can be obtained from the magistrate’s court. The first step to take, is to try and sell any of the home owner’s movable assets, such as a car or equipment that is worth something.
After going through this legal procedure, if the owner of the property still cannot pay back the entire loan, the bank can then ask a sheriff of the court to sell the property. The property is usually sold at a public auction and these types of properties sell for lower than market value. This is because the bank only wants the money back that is owed, but if the bids on the property are too low and does not cover the debt, a bank representative at the auction can ‘buy the property back’. This means the property is now recognized as Property in Possession or PIP, which means the property is now legally owned by the bank.
Unfortunately, this means the previous owner must vacate the premises. Banks often provided lists of these repossessed properties to professional property agents, who will then try to sell the properties. There are a lot of terms out there that surround repossessed properties, let’s have a look at some of these.
This means the property in question has been sent a foreclosure order. The property can also be advertised, for sale, by the bank, or those who loaned the money to the property owner. The process involves selling the property to avoid foreclosure and, in the end, prevent any more financial losses. As explained above, repossessed property, is taken back into ownership by the lender or bank. Today, the banks honestly try to help as much as possible, so before the bank or lender makes a move, the seller can first approach the bank for help. The owner will then be added to the assisted sale program. The person who owns the property then gives the bank authority to sell it, the bank then brings in the aid of a reputable Estate Agency to help with the process. These properties are known as bank mandated sale properties.
When the owner of a property is unable to make the repayments on their home loan to the bank or lender, there is a legal step the bank can take to get their money back. The foreclosure forces the owner to sell the property or asset, which was used as the collateral for the loan.
Insolvency and bankruptcy
Insolvency basically means somebody who is unable to pay off their debts, these debts or liabilities surpass their assets. Insolvency is a state that can reach bankruptcy but can also only be a temporary situation. In the case of bankruptcy; this is a legal procedure that is filed and is considered the final process for insolvency. Re-possessed properties in these cases can be invalidated.
Now that we have looked at the basic terminology, let’s move onto the basics of what you need to know if you are thinking of buying repossessed property.
Buying repossessed property
On the one hand having your property being repossessed can be a terrible experience, but for buyers, it could be an opportunity. A buyer can easily find a property that is selling for below market value and therefore gain a bargain in the process. You could be looking for a more affordable home for yourself or go even further, looking to invest in property.
There are some factors to consider as you have different types of sales that can take place:
- The bank mandated sale will not necessarily get you a cheaper bargain, as many of these properties sell very close to their market value. In these cases, the seller or owner is not really obligated to accept a lower offer. Obviously, if the property cannot be sold, then the bank will have to take further legal action to obtain their money.
- Sale of execution, this is where the property is sold by auction and the properties sale price is listed very low. This price usually just covers what the bank is owed.
- If after all, this the property does not get a sale price that covers all the costs, the bank then buys the property back and it becomes repossessed property. As for sale of execution, the properties are then sold at very reasonable prices. Anybody interested in these properties will have to make an offer directly to the bank. The bank usually chooses an Estate Agency that would deal with the sales process. The bank can then accept or decline any of the offers made, but since this is the very end of the sales process, the bank just wants its money back and would consider any reasonable offers.
Like with any investment opportunity, it is advisable to do a bit of research before jumping into a major financial decision. The best way to get an overall idea, is to have a look at the advantages as well as the disadvantages of buying repossessed properties. This includes looking at the sale of execution or auction process.
Advantages of buying repossessed properties
There are many advantages to buying repossessed properties or Properties in Possession. Top of the list being the affordability, a good property will sell at a great price. These properties usually need a bit of fixing up. By renovating the property, the buyer investing in the property will then have a high probability of making a substantial profit off the investment. Another favorable fact is that you do not have to pay transfer duties. Some more great advantages include, the buyer is more likely to get a 100% loan and discounted bond fees. Specifically dealing with repossessed properties, the bank must deal with any of the rates and taxes, until the property is registered under new ownership.
Disadvantages of buying repossessed properties
There are a few disadvantages as well, when it comes to this type of property purchase. Those wishing to buy property at an auction should understand that they would require a fair amount of cash up front. If you have made a bid successfully, then you are required to put down a deposit of at least 10% of the sale price. You will also have to add the sheriff’s commission, which is also a percentage of the sale price. In this case, if you have bought a property on auction, you may be responsible for any outstanding debts linked to rates taxes and any levies on the property, since the transfer of the property may take up to six months. That’s if you did not read the small print on the sales document beforehand.
Since repossessed property is the last step for the bank to get their money back, the property has already been on the market beforehand without selling. When something does not sell, there is usually a reason for this. In this case, the property could be run-down, which is in most cases as the previous owners could not repay the loan let alone keep up the maintenance of the property. So, if you are more interested in a fixer-upper, then this is an excellent opportunity. Just make sure you include any maintenance costs for the property before you decide to buy.
Another disadvantage is, when the property has been transferred into your name, you as the new owner, may have to give the people still residing there and eviction notice. This does not go over well with some people, in which case, you will have to go ahead with a legal eviction. In certain cases, for example buying a property within a township, may cause problems. This is because, in many instances, if there are tenants on the property, they will ignore the legal eviction, which could lead to protesting. This leaves the new owner out in the cold, paying for a property they cannot live in.
Buying property, even at a substantial discount, can still involved large sums of money, you don’t want to go into the process unprepared. This is especially true if you want to make a profit; things like location can play a major role. If you think you are purchasing a bargain, but the property lies in a declining area, it may not be the wisest decision.
To get a look of where you can find repossessed properties on the market, you can pop into your local bank branch to enquire, visit a reputable Estate Agency or easily have a look at the many options online. All you need to do is to visit sites like property24, where you will find a listing of different repossessed properties.
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