Buying property is a big task and it becomes a bit risky when you the aspiring homeowner decides to purchase a property from an auction event. This blog post helps you understand the key features to consider before finalizing a deal from such an event where a mortgaged property is being sold by the lender due to borrower’s inability to pay back the loan amount. So, scroll down and check out the things to consider while buying a property from an action:
1. Unpaid Municipal Tax
This is the first thing that you must check while buying a property as a person having insufficient funds to pay back the loan amount is likely to be a defaulter of a municipal corporation for the same reason. This is very important to check because of the properties sold in auction fall under as it is where it is basis and thus the future property owner i.e. the buyer becomes liable to pay all outstanding taxes.
So, property purchase without checking this point is likely to shell out more money than what you have estimated for this purchase.
2. Outstanding Society Tax
Similar to the above-mentioned outstanding bill, you the aspiring property owner is also required to check if the society in which the property fall has a clear bill cycle or not. This is the second important thing to consider as you being the new owner becomes liable to pay all current outstanding society charges along with the penalty fee.
3. Check for Property Title Legally
A bank might be carrying out the auction process but this financial institution does not hold the property title as they only offered financial assistance to the actual owner who now fails to pay back the loan amount. Thus the bank won’t take the responsibility of property title as they are not the legal property owner. So, we suggest you take a legal opinion on property title as it is necessary to purchase property with clear ones. Else you can face several issues even after owning the property.
4. Arrangement of Funds
A person is required to pay the entire property cost in a short notice from the time of owning property in the auction process. In fact, the buyer is required to deposit a sum of money while the process starts and which is likely to be lost if someone else wins the auction process. This is same for both an under-construction property and for a ready to move in property.
You the homebuyer also have an option to avail in-principle home loan according to the income earned. But, primarily the property buyer is required to pay both the deposit money and the leftover amount from his/her side which can later be turned into the loan procedure.
So, plan sufficient funding in order to buy a property from an auction process.
5. TDS Payment on Purchase
According to the Income Tax laws, the home buyer is required to deduct tax at source at 1% from the property purchase if the property values more than Rs. 50 lakhs. This same rule is applicable for the property purchase made via an auction process. The bank is not the actual property owner but you being the next property owner of this particular property become eligible to have a TDS deduction which should be credited to the account of the original property owner.
To complete this process, you are required to have the PAN details of the original property owner as the TDS is directly credited to PAN.
PAN is an important document to obtain as you the home buyer becomes eligible to pay 20% tax instead of 1% in absence of this document.
Remember that you are required to negotiate with the bank to include TDS amount in the purchase cost. If the bank won’t get convinced then your purchase cost will go up by 1% which can’t be recovered as it will get deposited in the account of an original property owner.