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

  1. Hi John,

    We recently bought a house on auction (an insolvent estate) they are currently busy with the transfer-our offer was accepted on the 23 September 2015. We were told we could move in (after we were able to get rid of the current occupants) and are currently living without electricity.

    The transfer lawyers have only just asked for the clearance figures and still have to request the money from the estate to pay the clearance of roughly R18000. However, the total outstanding amount is over R93000. The local council has advised that they will not allow us to put the rates taxes/water and lights in our name until the total is paid?

    Do we have no rights as consumers as in our contract or purchase agreement we are NOT liable for these costs? Basically we will be living indefinitely without power?

    I hope you can give us some advise.

    Many thanks,

    1. Hi Kate

      By law, before transfer can take place, a rates clearance certificate must be issued by the local municipality. This is to confirm that the seller has paid rates and services for the preceding two years. Some municipalities attempt to charge owners for all the outstanding municipal debt on the property. In many cases sellers are saddled with huge amounts going back many years, incurred by multiple previous owners of the property.

      In terms of a recent High Court decision, municipal authorities have been misreading a 2013 judgment (City of Tshwane v Mathabathe) and have been incorrectly interpreting the ruling to mean that the uncollected municipal debt belongs to the property and subsequent owners can be held liable. Thus it became the norm for Municipalities to withhold municipal services from these properties for as long as the historical debts remained unpaid.

      In a judgment handed down in September 2014 by Judge Fourie in the North Gauteng High Court (Perregine Joseph Mitchell v City of Tshwane Metropolitan Municipal Authority), the original judgement was clarified as follows: the seller is not liable for the payment of outstanding municipal debts older than 2 years, which were incurred by previous owners.

      As your seller is the administrator of an insolvent estate, instead of writing off the debt, the municipality is now holding you, the purchaser, liable for these excess arrears. Even worse, they are attempting to extort something like R75k from you by threatening to withhold your services! Clearly, your local municipality is blissfully unaware of the above ruling and is still living in the past.

      At this point it may be prudent for you to consult with an attorney (not the transferring attorney who is looking after the interests of the seller). Have your attorney assess the facts and then communicate with the municipality on your behalf to get this matter sorted out. Hopefully a simple lawyer’s letter pointing out the realities of the situation may suffice.

      Best of luck and thanks for your question.

  2. Hi John. I’ve recenctly spotted a repossesed house on the internet, but now it doesn’t show which bank is responsible for sale of the house instead a certain home developer is the one marketing the house. My problem is I don’t trust this developer guy. How do I find out which bank is responsible for sale of this repo house?

  3. Hi John

    We are currently renting the house and the bank sent someone to investigate the property and he told us that the house is owned by the bank. We’ve been paying rent.

    We told him that we want to buy the house and he told us that the bank will contact us. We want to know about how much will the bank sell the property for and if we can tell the bank how much we qualify for and how well we’ve been maintaining the house. The garden is clean and we fixed the falling ceilings and we painted the house inside and out. There is a problem with water pipes through the shower wall inside and outside.

    Can you advise us what we can do?

    1. Hi Jabu

      First you need to find out which bank owns the property and how much they want for it. Once you have this information, you can make a decision as to how much you are willing to offer for the property, taking it’s current condition shower pipes and all into consideration.

      Then you need to establish how much you qualify for in terms of a mortgage loan. Approach the same institution that owns the property as you may find it easier to qualify. You could ask them to provide you with a pre-approved bond finance package that includes the costs of transfer. It would advance your cause if you could invest some cash in the deal.

      At this point you will be ready to make the bank a written offer.

      Good luck and thank you for the question.

        1. Hi John

          The property is under nedbank, we want the house its a 3 bed house, main bed with shower, kitchen and open space for dining and lounge. The walls are wet due to the broken pipes through the shower walls inside and outside so can we put an offer of R350000.00 due to the condition of the house. or can we reduce the amount please advice us.

  4. Dear John
    I would like to know I see a house selling for 600000 but when I check with municipal they say the ERF Value is 390000 what’s the different between the two price

    1. Hi Ellas

      In terms of the Municipal Property Rates Act No.6 of 2004, all properties must be valued by the local municipality every four years in order to establish the municipal valuation. This value is used by the municipality to calculate the annual rates and taxes payable on the property. This municipal value is the “ERF Value” that you referred to above.

      Although the municipal value and the selling price of a property should be the same, or at least reasonably close to one another, in practice there is often a large discrepancy between the two. This might be because the selling price of the property has been set unrealistically high or alternatively, it may be due to an inaccurate or out of date municipal valuation.

      The Act specifies that the municipal valuation of a property should be equal to the market value of the property. The market value is defined as the amount the property would have realised if sold
 on the date of valuation in the open market by a willing seller to a willing buyer.

      The correct asking price for a property should also be as close as possible to the market value. You can determine the market value of any property by comparing it to similar properties that have recently been sold nearby. This information is best obtained from the publicly accessible records of the Deeds Office Registry and any competent estate agent can help you with this.

      Best of luck.

  5. Hi John

    I’m in the process of buying a bank repossessed house and I asked to view the property.

    The bank has responded as follows..

    “Kindly be advised that we cannot arrange access to view the property as it is currently occupied by illegal occupants/ex-owner therefore we cannot trespass or force entry for safety reasons.”

    What’s your advise regarding this?


    1. Hi Michael

      Sometimes it is impossible to gain access to a bank repossessed property in order to view the condition of the property before you make your offer. Obviously this increases the risk to the purchaser considerably as the condition of the property can only be gauged from the outside.

      As mentioned in the above article under point #6, with a bank repossessed property the cost of evicting unwanted occupants will automatically become the purchaser’s problem when the sale goes through.

      For this reason you would be wise to see an attorney before you make your offer in order to obtain an estimate of the costs involved. Do this so that you can factor the expense of obtaining an eviction order into your offer. For example, if it’s R50k you should reduce your offer to the bank by this amount.

      Best of luck.

  6. 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 heard 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

    1. Hi Lebo

      Sadly, this kind of thing can happen where there is little respect for the rule of law and when there is a lack of appreciation for the concept of property rights and ownership.

      The sheriff is an officer of the court and any persons obstructing or interfering with the sheriff’s work may render themselves liable to prosecution and further costs.

      You should immediately contact the sheriff if the owner moves back into the property after eviction. It is the sheriff’s duty and responsibility to carry out the court’s instructions.

      Best of luck.

  7. 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.

  8. 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.

  9. 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.

  10. 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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