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.
I have just been informed that my offer on a repossessed property has been accepted. I drove past the house a week before the offer was accepted and noticed that it was still occupied. While I await the bank’s response, where would I find out whether the tenants have a fixed lease or not and what would be my next step?
Should the current tenants cause damage to property, do I have any recourse?
Hi Wendy,
The property belongs to the bank until transfer of ownership takes place in two to three months time. Consequently, the tenants will now be leasing the property from the bank. They are most probably renting on a month-to-month basis. If so, the bank must give the lessees notice of termination one month before the estimated transfer date. It may be a good idea to contact the bank and confirm that this is the case.
In the unfortunate event that the tenants damage the property in the period after your offer is accepted, and before transfer takes place, you can hold the seller (the bank) liable for the cost of making good.
Good luck, and congratulations on your purchase.
Hi John,
We recently bought a house from an insolvent estate. We were under the impression that registration should take about 4 to 6 months. Our home loan has been approved, but we have not been contacted by the lawyers allocated by the bank. We do however have their details and we have phoned to find out when we can sign the agreement.
We have made arrangements to move in and pay occupational rent as we were under the impression that it will only be a month or so before we have it registered. When we spoke to the lawyers appointed by the bank, they informed us that they can only have us sign the agreement when they have received the cancellation figures and only told us now that this can take up to 6 months.
Does this now mean that we need to pay occupational rent for 6 months and can not make any renovations to the property? I am also concerned about the occupational rent that will add up to a lot more than we budgeted for. We were informed about this today and we are suppose to move in on the 1st of June. Should we have known earlier we could have made other (less expensive) living arrangements. But we have signed rental agreements for 6 months with tenants at our current house.
Is there anything we can do to get the process finalised earlier? Is this how long it takes to register a house bought from an insolvent estate?
Any advice you have would help a lot.
Thanks.
Hi Bianca,
The time that it takes to wind up an insolvent estate varies greatly depending on the specifics. Assets owned by the insolvent estate must be liquidated in order to settle claims lodged by creditors. This process can take anything from the 4 to 6 months you’ve been quoted, right up to a year or two in some difficult cases. Unfortunately, there’s nothing you can do to make this happen faster; it will take as long as it takes.
It’s not a good idea to undertake any work on the property until it’s finally registered in your name. If for some unforeseen reason, transfer does not actually take place, you may be unable to recoup what you have spent on improvements in the interim. While this may not be what you were hoping to hear, you’d be wise to exercise some patience. Hang in there.
My husband and I are first time buyers and we want to purchase a insolvent property that is R500 000 we have to pay a deposit of R50 000. There is a security company guarding the house so it seems simple. We went to Standard Bank and made a pledge for per-approval and they informed us that we could get a home loan for R543 000.
My question is that I read on the website of the company selling the house that you cannot get a 100% loan on a insolvent property. So if we make and offer for R500 000, which is the price advertised, and we apply for and R500 000 home loan and we only get 90% approval, seeing that we paid R50 000 rand will the bond we then require only be R450 000?
I really love this house but I don’t want to lose my R50 000 deposit.
Hi Yons,
Yes, a 90% bond is R450 000 so that would be the amount that you need to apply for. However, remember that the purchaser must also make provision for transfer costs. This should be somewhere in the region of R25 000, or perhaps a little less. You may be able ask your bank if you can include this amount in your bond finance. If your bank agrees, you could apply for a loan of R475 000. In order to protect yourself, your offer should be made subject to the approval of a loan in this amount.
Don’t worry about losing your deposit. This will be held in a trust account and will be released by the conveyancer on transfer, at the appropriate time.
Congratulations on the purchase of your first home, and thank you for the question.
This is an excellent article with useful comments. Thank you. I bought a PiP a few years ago and never had to get the certificate of compliance before transfer. Have the laws changed?
Hi Bruno,
Thanks for your kind remarks. The current regulations came into effect in 2009. Prior to this, an Electrical Certificate of Compliance (ECOC) remained valid indefinitely and could be transferred without limitation, unless changes were made to the electrical installations. Under the new laws, the ECOC remains valid for 2 years, unless new work is performed on the installation in the interim.
Hi,
I want advice on buy and sell repossessed properties. Is this a big challenge I should be worried of or it’s a loss to do reselling? What other hidden issues I should know or be aware of when starting to do this kind of thing?
Thanks in advance.
Hi Thendo,
I would advise that you read through the above article carefully and read all the comments posted. Some of the questions on the typical problems you might face have previously been asked and answered. So this may prove to be a valuable source of information for you. Of course, you are welcome to post any questions that might pop up, that haven’t been answered here already.
Apart from that, it may be wise to be extra careful with your first purchase. Until you have accumulated some experience, don’t be shy to ask for help; exercise caution before you make any decisions. There is no substitute for common sense.
Best of luck!
It is good to be reminded about the importance of having a clear goal and strategy. We often see property buyers make assumptions, rather than actually investigate, the renovation or development potential of a property. This can be a costly mistake. I always encourage people looking to buy property to investigate the town planning and building rules.
I am interested in buying bank repo properties but have a few concerns. How does one request to view the title deed? Are there specific departments dealing with this within the banks and, if so, what departments?
Also from some PIPs viewed the bank disclaims that there is eviction problems with current tenants. So if a tenant is not leaving, what can I do to get use of my asset?
And a final concern is that electrical compliance is key to a property, and you say it is the buyers responsibility. So what if I buy the property and learn that the property is not compliant? Then I have made a huge loss. Is there a way of obtaining compliance before I buy the property? And on average what does this cost?
Hi Shuaib,
The title deed should be in the banks custody. You might ask the bank to direct you to the right department.
Any persons living illegally on the property will be your problem, once you become the owner. You’ll need to have them evicted at your cost if they refuse to leave. If you are unlucky enough to be saddled with this problem, you will need the services of an attorney to apply for a court order to empower the sheriff of the court to carry out an eviction. The process is likely to involve significant time and costs, so it may be wise to factor this in when making your offer.
If you are worried about electrical compliance, you could have the property inspected by a registered electrician before you make a commitment, on the basis that the work will be performed once your transaction goes ahead. Contact a few local electricians in your area to get some idea of the cost of the initial inspection.
Good luck.
Hi John,
I have a house that I cannot afford to pay any longer and it has been on the market for a while now more than a year. I was retrenched for 9 months and unable to pay my debts. Now I am working again but I still cannot pay for the house. My house has tenants in it…how do I get out of this situation??
Thank you in advance.
Hi Jojo,
The fact that you have tenants in the property is a big positive. It means that you are able to service your loan, perhaps with a small supplement from your current income. In this way you may be able to avoid having your property repossessed by the bank.
Perhaps you could also approach your financial institution and ask to have your loan restructured so that your bond payments can be reduced if possible. In the mean time, continue to market your property with a reliable real estate professional. The objective will be to find a buyer who is looking for an investment. In this scenario, existing tenants are a plus. Eventually your property will sell.
Best of luck.