Is It Safe to Buy NPA Property?

Hi Vasanthi,

When I saw a flat listed for auction by a bank, the price immediately caught my attention. It was significantly lower than similar flats in the area, and I thought, If a bank is selling it, surely the property must be safe. But before placing a bid, I realised that a bank auction does not automatically mean a completely risk-free property.

Is a Bank-Auction Flat Safe to Buy With Hidden Liabilities?

1. Bank-auction properties are usually sold to recover loans that borrowers failed to repay. Under the SARFAESI process, banks can enforce their security interest and auction eligible properties. The attractive price can make these flats a good opportunity, but the buyer must understand what comes with the property.

2. The biggest concern is the “as is where is” condition commonly included in auction terms. This can leave the buyer responsible for issues such as unpaid property taxes, society maintenance, utility dues, title problems or possession-related disputes, depending on the auction terms and applicable law. Recent court proceedings also show why buyers should not assume that the bank will automatically clear every past liability.

3. Before bidding, I would get a property lawyer to verify the title chain, encumbrance certificate, CERSAI records, pending litigation, municipal and society dues, and the bank’s possession status. I would also physically inspect the flat and confirm whether the bank has physical or only symbolic possession.

So, it can be, but only after thorough due diligence. The discount should never be the reason to skip legal and physical verification. A cheap property can become expensive if hidden liabilities or disputes appear after purchase.

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Hi Ahamad,

A few years ago, my friend found an NPA property being auctioned by a bank at a price much lower than similar properties in the area. Since the property was being sold by a reputable bank, he assumed that the title would be completely clean and that any previous problems would have been resolved before the auction. He paid the auction amount and took possession, only to later discover that an old dispute relating to the property was still pending. 

Does Buying an NPA Property From a Bank Guarantee a Clean Title? 

1. The bank does not automatically guarantee a completely clean title simply because it is conducting the auction. Many NPA properties are sold on an “as is where is” and “as is what is” basis, meaning the buyer is expected to carry out independent due diligence before purchasing.

2. This is important because old disputes, unpaid government dues, possession issues, encumbrances or claims from third parties may come to light later. A bank may have the right to recover its outstanding loan by selling the secured property, but that does not necessarily mean every historical issue connected with the property has disappeared.

3. Therefore, before bidding, a buyer should carefully verify the title documents, previous ownership records, encumbrance certificate, revenue records, pending court cases, property tax and other statutory dues. It is also advisable to examine the bank's auction notice and possession documents and obtain an independent legal opinion.

So, a bank auction can provide an opportunity to buy property at a competitive price, but it should not be treated as a certificate of a dispute-free title. 

For individuals seeking to purchase at a reduced price, non-performing asset (NPA) properties present a special investment opportunity. Recently, I asked my friend, a real estate advisor, is it safe to buy NPA property. He said even though the reduced costs may be tempting, as a purchaser, you should proceed cautiously, particularly when interacting with local agencies.

Is It Safe to Buy an NPA Property through a Local Agent?

Although purchasing an NPA property through a local agent is safe, it can be risky. Ensuring the property's history is transparent and all legal checks are finished is the major concern. Agents are not completely transparent regarding unpaid debts or legal issues. Hence, working with a reputable and knowledgeable agent who can appropriately guide you and guarantee a safe and easy transaction is crucial. 

Risks to Consider while Purchasing NPA Property

1. The title to the property may not be clear. 

2. The NPA property may be the subject of ongoing legal issues. 

3. It may have outstanding dues, for which the buyer would be liable. 

4. After the auction, there may be a delay in getting the property in person. 

5. Unreported structural or other damages in the property could necessitate expensive repairs.

If you do due diligence, purchasing a non-performing asset property, typically at a bank auction, can be secure. Ultimately, the buyer might choose to acquire an NPA property from the mortgage company, a local dealer, or the owner directly.

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