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What are Bank-Repossessed Properties?

Bank Repossed properties are the result of borrowers defaulting on their home loan repayments to the extent that the home loan has to be cancelled.
There are 3 distinct phases where buyers are able to purchase these properties - Distressed Sales, Sale in Execution (SiE) and Properties in Possession(PiP). The best way to understand the difference between the three is to understand the repossession process:

  1. A borrower defaults on the homeloan to the extent that the only alternative for recovering the debt is via repossession.
  2. The bank's attorneys apply for a judgement at the magistrates court.
  3. Assuming the arrears have still not been recovered by now, the borrowers movable assets are auctioned
  4. If the sales from the movable assets' auction still don't cover the mortgage arrears, then the property is auctioned - a "Sale in Execution (SiE)". Up to this point the owner may however try to sell the property - the so-called "Distressed Sale".
  5. Should the banks reserve price not be met at the SiE, the bank has the option to buy back the property itself - a "Property in Possession"

Why are Properties in Possession Popular?

It is best to check the terms before you put in an offer, but usually:

  • There is no transfer duty, which can be quite substantial (e.g. R25,000 for a R1 mill property)
  • Home loans are more easily approved for PiPs. It is not uncommon for 95% or 100% loans to be granted, even in the current marketplace; again subject to terms and conditions.
  • PiPs are perceived by the market to be good value for money (though not necessarily bargain-basement cheap).
There are other, softer benefits as well. The property may have been neglected due to the owner's financial predicament, so it may be in a state of disrepair. Consequently is may present a good opportunity for a fixer-upper home.

On the downside however, the property may still be occupied when you purchase it and also PiPs are usually sold ‘voetstoets’; again it is worthwhile to verify with the bank first.

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