You can get a bargain when buying a distressed property, but you must do thorough research to avoid issues such an acquisition becoming a nightmare.
As a result of tough economic times, including loadshedding, many distressed properties may go on auction. Business Insider South Africa reported that distressed properties could achieve an average discount of about 40% to their municipal valuations.
There are a few key stages when buyers can purchase a distressed property.
First, when a homeowner tries to sell their property to avoid having their home repossessed. The defaulter can sell the property themselves or with the assistance of their bank.
Second, a “sale in execution” property is where the bank gets a default judgment against a borrower and then the sheriff of the court auctions the borrower’s movable assets. The sheriff auctions the property if the sale of the movable assets does not cover the mortgage arrears.
Third, a bank-repossessed property is where properties auctioned by the sheriff fail to achieve the reserve price set by the court. As a result, the bank can buy the property, and the money from this acquisition clears part or all of the arrears owed by the former owner.
Buying a repossessed property from a bank has several advantages. First, you often do not pay transfer fees. Second, once a bank repossesses a property and sells it – but excluding an auction by the sheriff – the bank usually settles all arrear rates, levies and taxes on the property due until registration.
However, for a sheriff of the court auction, a buyer must settle rates, levies, and taxes up to registration. A bank selling a repossessed property often offers discounted attorney fees. However, bank-repossessed properties take longer to transfer than the usual three months.
Vacant distressed properties have greater valuations than inhabited ones, as evicting people can be arduous and expensive.
Evicting people from a property can only begin when the new buyer has registered the property in their name, and the new owner must pay all the rates and taxes while waiting for occupiers to be removed.
When buying a distressed property, ascertain how much is owed in municipal rates or, in addition, the levies owed for a sectional title unit.
A prospective buyer of a distressed property must visit and inspect it. Unfortunately, these properties are often poorly maintained or get vandalised. As with any property, location is important, so get to know the neighbourhood. Auctions by the sheriff often get cancelled, so save time, do your research a day or two before an auction.
Make sure you have adequate finance before registering for an auction. You must pay a registration fee to bid at a distressed property auction, but the fee is refundable if you don’t buy.
You must also provide the auction house or sheriff of the court with your Financial Intelligence Centre Act documents to register for an auction.
You must sign an offer to purchase document and put down a deposit once you buy a property at an auction and pay the balance of the purchase price after that. Commission is also payable to the auction house or the sheriff of the court.
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