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:
- A borrower defaults on the homeloan to the extent that the only alternative for recovering the debt is via repossession.
- The bank's attorneys apply for a judgement at the magistrates court.
- Assuming the arrears have still not been recovered by now, the borrowers movable assets are auctioned
- 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".
- 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"
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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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