Top 10 Tips for Buying A Bank Repossessed Property

Property Bank Repossessed
Property repossessed by the Bank is an attractive buy!

One of the advantages for buyers of property in the current economic climate in South Africa is the increased availability of Bank Repossessed homes on the market.

When borrowers default on the payment terms of the mortgage loan, eventually this will lead to legal action by attorneys instructed by the mortgage holder.

A judgement is obtained in the High Court and the property is then attached and sold by the Sheriff of the High Court at a sale in execution. If the auction fails to achieve the bank’s reserve price, then the property will be bought by the Bank and placed on the market again. This is called a Property in Possession (PIP).

Another source of PIP’s comes from home owners that are declared insolvent. Here a trustee will be appointed, who in turn will appoint estate agents to market the property. If it does not sell, a public auction will be arranged through a qualified auctioneer. Once again, if the property does not fetch a suitable price, the Bank may buy it in and the property will be placed on the market by the Bank.

On average Bank Repossessed properties sell at a huge discount and since banks are keen to find buyers they are often ready to relax their lending criteria, making home loans in these cases a little more accessible. This may include reduced, or even no, home loan registration costs.

Other advantages are that the Transfer process is often much quicker, leaving more time to do any renovations before actually moving in. Also, property rates and taxes (including arrear amounts) will be paid by the seller (the Bank) up until date of registration.

Here are the Top 10 Tips for Buying a Bank Repossessed Property:

1. Make sure you have a plan:
What will you do with your property? Will it be a buy-to-rent purchase, will it be a holiday home or will you live in it.

2. Get a “pre-approval” if you intend to buy with a mortgage bond:
Chances are, if you like the property so will many other potential purchasers. You do not want to lose out to another buyer while you are waiting for your home loan approval. Have your pre-approval in hand when you make that offer to the bank. It will greatly speed up the process of having your offer accepted.

3. Compare the price of similar sold homes to the price of the Bank Repo:
You need to compare “apples to apples” to make sure that your intended purchase is good value. An experienced agent can help you with this by preparing a Comparative Market Analysis (CMA). By accessing Deeds Office records for the selling prices of properties recently sold it’s possible to get an accurate assessment of what your target property’s selling price should be.

4. Know the hidden costs of the property:
Bank Repossessed properties are sold voetstoots (as is) and the bank will not undertake any repairs. Often the property has been stripped of fixtures and fittings and the gutters and down-pipes are missing, for example. Typically the property has been through an extended period of neglect and essential repairs and maintenance have not been taken care of by the previous owners.

Electrical, Plumbing and Gas Installation compliance certificates must be obtained by the purchaser as part of the transfer process. If the property is in a mess the costs of bringing these areas up to scratch could be significant.

5. Get a home inspection:
A thorough inspection for defects carried out by professionals can go a long way to identify all defects and potential defects in the property. Consider investing in a Professional Home Inspection before you make a buying decision.

6. Investigate if the property is occupied:
It can happen that there are occupants living on the property at the time of sale. This could be the previous owners that have not yet moved, tenants that are still there or it may be an illegal occupation. Whatever the case, this automatically becomes the buyer’s problem at the time of sale and the costs of an eviction and relocation may become the purchaser’s liability.

7. Investigate restrictions on the Title Deed:
Any restriction or servitude on the Title Deed may or may not be mentioned in the information provided and it is therefore advisable to look at the Title Deed before making a decision. If the property is owned by the Bank then the Bank will be in possession of the Title Deed.

8. Consider the location of the property:
This may seem obvious but most people in financial trouble will first have tried to sell the property themselves before the bank foreclosed on them. If the home is badly situated this could be the reason the property did not sell in time to save the situation.

9. Make a good offer:
Once you have decided that the property you are considering is a good buy, know that other people will also come to the same conclusion. There is no point in making a low offer. Ideally you should make an offer that is within 90 – 95% of the Bank’s asking price. You will just lose out, and will keep losing out to other purchasers as long as you keep making offers that are too low.

10. What to do if your offer is turned down:
You could up your offer. However, you might consider it worthwhile to wait 30 days and re-submit your offer. Properties in Possession are expensive to maintain. There may be security guards on the premises and the garden must be maintained, for example. The Bank could become more negotiable with the passage of time.

If there is anything else you would like to add please feel free to do so in the comments.

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133 thoughts on “Top 10 Tips for Buying A Bank Repossessed Property”

  1. Hi, we have are in the process of buying a house. It was originally bought on auction. We are in a tri-party agreement. We are almost at transfer of the house and now the old owner has done this:

    1. After the lights were cut she has made an illegal connection so we can’t get rates clearance.

    2. She has hired an attorney to try and get the repossession recinded.

    3. She is refusing to move even when our house transfers.

    What are her rights legally?

    Should we wait out the legal issue as this originally repossessed by standard bank and I don’t see how they would have done it wrong? Does she have any leg legally?

    If we proceed the legal issue might take a month or so and if they find in her favour would they give her back the house (after it was reposessed)?

    Please help.

    1. Hi Shelly

      You should consult with an attorney now, without delay, rather than wait out the legal issues.

      Know that when transfer of ownership takes place, after you eventually get rates clearance, the original owner will be an illegal squatter on the property; it will become your problem to get rid of her. You will need to obtain an eviction order through an attorney, after which the Sheriff of the Court will be empowered to do the necessary.

      Unfortunately, this will take time and money. Hopefully, this is offset by the fact that you paid well below market value for your property at the auction.

      Good luck.

  2. Hi I want to purchase a house that will be going on auction. The house looks to be in good shape. The owners are not saying why the house is going on auction though they just said they are desperate to get it sold.

    I do not have all the finances to make a strong bid. Can a bank bid on my behalf or would I need to take out loan?

    This is from someone who would be a first time purchaser.

    1. Hi Ace

      The most common reason for a house being auctioned is that the owners can’t afford the loan repayments.

      Before you bid at the auction you should apply for pre-approved finance with a financial institution. Let the bank know that you intend to bid at an auction and ask if your transfer costs can be included in the loan. Alternatively, you must make separate provision for costs.

      In this way you will be able to bid at the auction, secure in the knowledge that you can afford it.

      Best of luck.

  3. Hi John,
    I have just bought repossessed house and the Lawyers are still busy with documentation however I have just witnessed some people cleaning the yard of this house. Could it be that the house has already been bought or something and is it safe to proceed with the purchase or should I cancel the whole thing. Is there a possibility for the seller to rather get me another house or can they refund me if I am not comfortable with the sale anymore? Please advise me.

    1. Hi Bonga

      Once you’ve signed a binding contract, it’s not that easy to withdraw. At the very least, cancelling at this point may turn out to be an expensive exercise for you.

      The fact that there are people out there cleaning the yard is not neccesarily a matter for concern. The transferring attorney that is handling the transaction is charged to see that everything goes smoothly. You can always give them a call to see how matters are progressing.

      Best of luck.

  4. Hi John

    I bought a bank repossessed house in April last year I followed the legal route but I’m still śtucked with the eviction issue. The community took the person back into the house they say no one is allowed to evict people in their homes. So please advise me on the other route to take coz ànother thing is I don’t have money to pay for another eviction please àdvice as I was ñow considering demolishing the house and sell it as a vacant land Im really confused

    Best regards

    1. Hi Lebo

      My sympathies for your unfortunate experience.

      Sadly, this is one of the risks one faces when buying in an area where the neighbours clearly have no respect for the property rights of others.

      However, it’s perhaps worth approaching the Sheriff of the Court; inform him that the person that was evicted is now back in the property. It’s a very serious matter to contravene an order of the court.

      Whatever you do, please do not take matters into your own hands. If you demolish the property you may suddenly find yourself on the wrong side of the law.

      The occupant could manage to get legal aid and then obtain an interdict ordering you to rebuild the property at your own expense, for the benefit of the current occupant.

      Good luck.

  5. I’m the first buyer I want to buy repossessed house. The agent say I must pay the money before they procces the deal. Am scared to lose my money must I trust these people

    1. Hi Zola

      There are some excellent safeguards available to parties involved in real estate transactions conducted in South Africa.

      Firstly, the Estate Agency Affairs Board (EAAB), issues all estate agents with a Fidelity Fund Certificate (FFC). The FFC must be renewed on an annual basis. Agents are required to produce this certificate when requested to do so.

      You should be very careful if the agent has some problem with producing it. If you are unlucky enough to be the unfortunate victim of the negligence or wrondoing of a registered agent, the board may re-imburse you for your loss once the agent has been found guilty.

      Note that you can’t claim from the EAAB’s Fidelity Fund if the estate agent is unregistered and has not been issued with an FFC. However, it’s a criminal offence for any person, including an unregistered estate agent, to receive money, conduct a transaction or operate as an estate agent if they are not in possession of a valid FFC.

      Secondly, both the Attorneys Act and the Estate Agency Affairs Act contain very strict provisions designed to protect the funds of parties involved in real estate transactions. Money should always be deposited in either the estate agent’s, or the conveyancing attorney’s Trust Account.

      Estate agents’ and attorneys’ trust accounts are subject to mandatory annual audits conducted by independent auditors. This ensures that estate agents and attorneys act with the utmost good faith when dealing with monies received and held in trust.

      Best of luck and congratulations on your purchase.

  6. Hi john

    After signing a offer to purchase a repo house almost 3 months ago and a few days away from moving in the bank just notifies us that they have changed their minds. Can they do this after this long and what are my rights if I want to contest. Please

    1. Hi Lucy

      Without sight of your agreement of sale, it’s difficult to advise you or comment.

      It would be best for you to have someone, preferably an attorney, peruse your documentation and then give you an informed opinion as to what your remedies may be at this point.

      Best of luck.

  7. Hi John

    Please advise on buying a repo do I pay for transfers and bond registration? How would they cost for a property 1.8?

    1. Hi Gabi

      Once you’ve found out which institution has the property in possession, you can approach them to find out what the costs will be.

      In some cases the bank may waive certain charges, for example the bond registration costs if you take the loan from the same institution. Some institutions have inhouse legal services that can reduce the conveyancing fees payable.

      Good luck.

    2. Thank you John i must say your page actually answers all my questiopns when. Just now i wanted to ask about the Compliance certificate to say on a Repo who pays for it.But thanks to you i have read my answer from a old article of the 13 Aug 2011.

      Thank you for equiping us with so much info as 1st time buyers.

  8. hi! i am looking for some advice please. i want to sell my mothers house in 3 to 6 months from now. it is 262 square meters and in a poor neighbourhood. how much do you think it is worth? i have heard my neighbour from a few houses away sold his house for 1 million or so! and secondly, i will need a place to stay and am looking to buy-i dont know where im going to go… but what i want to know is can i sell to the bank? because i feel it is harder to find a buyer through private sale. and will the bank help me to buy another home? also who do i contact first for help/valuations/additional advice? must i speak to the bank, a lawyer, or a realtor? by the way, i am a 27 year old law student, and still unemployed-but im hoping to find work sooner than later, which will likely be situated in the sandton area. i live very far away and my reasons for selling are many!!!… i wont go into it, but should i get work, i want to live nearby and not sit 4 hours a day in traffic! please john, any advice from you will mean the world to me! im in dire straits in a multitude of ways! and just looking to make my life better in 2016 GOD WILLINGLY!!! THANKS, HEIDI.

    1. Hi Heidi

      “I want to sell my mothers house”

      Unfortunately, you can’t sell your mother’s house; only the registered holder of the title deed of the property can sell it.

      “How much do you think it is worth?”

      This is difficult to say without seeing the condition of the property, the area and the specific location. To get an accurate market value it would be best to ask an estate agent to do a Comparative Market Analysis (CMA). The agent will compare the property to similar, recently sold, properties nearby to arrive at a realistic market value.

      “Can I sell to the bank?”

      It’s unlikely that the bank will consider purchasing the property from your mother. They would not wish to get involved unless the she has a mortgage bond registered with the bank and is defaulting on the loan repayments. In that case, the property may be repossessed by the bank and it may then become a Property In Possesion (PIP), as discussed in the above article.

      “Will the bank help me to buy another home?

      The banks and most other financial institutions are not in the business of helping people to look for real estate. An estate agent can help with that. Once you find a job, you can ask the bank to qualify you for pre-approved mortgage finance. This will help you to establish what your new home maximum purchase price should be. Until you have an income, you won’t be able to get bond finance. However, you can still buy for cash.

      “Must I speak to the bank, a lawyer, or a realtor?”

      Your mother should speak to a realtor first in order to grant a mandate to sell. Next, if she has a mortgage bond, your mother should advise the bank in writing that the property is in the market. Then she could speak to a lawyer about doing the transfer of ownership once a buyer appears on the scene.

      Hope that helps you and the best of luck in 2016.

      1. hi. thanks for taking time to respond- i do appreciate it…

        my mother cannot sell the house-she is dead. I am the heir and executor to her estate… I know that the bank dont buy houses-but for some odd reason i just thought perhaps i could sell to them to get it off my hands quick…

        it’s complicated but thanks again for taking time to reply to me.

        have a nice and happy new year for 2016…

        1. Hi Heidi

          You’re most welcome. I’m sorry about your loss.

          Notwithstanding the ‘poor’ area and the smallish size of the property, there’s a very strong market for lower-priced properties now.

          Once you’ve taken ownership, it might be worth considering granting a sole mandate to an experienced agent. Look for agents that know the area and ask each for a CMA as part of their mandate presentations. This will help you to make your choice of agent, and you will be entering the market at the right price, which is essential for a quick sale.

          Your agent should also be able to refer you to a competent transferring attorney who can expedite the transfer process. With deceased estates, unexpected delays are more frequent than one would think. A conveyancing attorney with the relevant experience can save you time and money, not to mention give you peace of mind.

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