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

  1. Hi John
    I bought a bank repossessed house in April this year at a location and it has a previous owner staying there so I tried to gather some history of that house and the personality of the previous owners

    I was told that the person staying there which is the previous owner is very rude. I wanted to meet with her but after I heard that I then decided to go the attorney’s route

    the eviction process is underway since I have received the title deed
    so what worries me is that I head that when sheriffs evict people the community jumps in and take the evicted person back into the house. so what procedure is being followed in such a scenario.

    I’m sorry for a long email I just wanted to try and give more detail to this issue

    Warm Regards
    L Pheta

  2. Hi John
    I want to buy a insolvent property. The previous owner is still staying on the property. The attorneys are selling the house for 500k but the owner is selling it online for 1500k. Should I approach the previous owner to liaise directly and advise that the attorney is selling it for less and that we are willing to offer the lesser amount directly to him?

    That way we can view the property and have an agreement directly or should we just deal with the attorney at the risk of the previous owner damaging the property?

    1. Hi Nerosha,

      When a property is part of an insolvent estate, it means that liabilities exceed the value of the owner’s assets. In such cases a trustee or liquidator is appointed by the Master of the High Court to oversee the sale of the property. For this reason, it would be unwise to have any dealings with the previous owner at this point. Rather deal directly with the attorney concerned.

      It could lead to serious legal consequences for the owner if the property is deliberately damaged in the interim.

      Best of luck.

  3. Why does a cash offer to a bank not count as cash when the money is derived from a 3rd party loan? Why would a bank lay charges against a prospective buyer making this type of offer?

    1. Hi Roger,

      Your information is a bit sparse and consequently it’s not possible for me to do justice to your questions.

      Best have someone, preferrably an attorney, peruse your documents and give you an informed opinion.

      Good luck.

  4. Hi John

    Im in the proses of buying a repo flat, my offer has been cancelled because the bank was not happy about my finance( meaning were the finance is coming from) I contacted them and told them that I want the house and why did they not return to me that my prove of finance was not acceptin. I called them because the flat has been placed for sale again. Plse advise how to go about from beginig to end on steps that you need to do when buying a repo property.

    Thanks in Advance

    1. Hi Michelle,

      If the bank is not happy with your prospects for finance approval it means you can’t buy until you sort that out first. No finance, no property.

      The best route is to get pre-approved finance in place so that you can act quickly when you find the right property.

      Good luck.

  5. Yo advices are very much helping. I also bought a bank repossessed house and while the lawyers were busy with the documents I searched for dat house history and found out that it’s a mother staying alone. So I’m gonna try and use your advise of offering to pay for her moving costs. Because I don’t have money to pay for the lawyers.

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