Author : Homeloans SA
How to Buy a Repossessed House
One way of getting into the property market as an investment, or to buy your own home, is to buy a repossessed house. This option must not be confused with buying a property on an auction.
What is a repossessed house?
When a home loan client can no longer afford his home loan payments the bank is forced to cancel the home loan agreement and institute legal action against the defaulter. Once judgement is obtained through the courts the property is attached by the Sheriff of the court and sold on an auction as a sale in execution.
The bank will set a reserve price on the property to cover the outstanding debt and if this reserve price is not reached at the auction the bank will buy the property and it then becomes a property in possession. Banks are not in the property business and they would like to get rid of these repossessed properties as soon as possible.
The steps to follow when buying a repossessed house
1. All banks will be able to provide you with a list of their repossessed properties. Ask at your local branch or search on the internet. Estate agents often also have details of properties in possession but dealing directly with the bank may be in your best interest, especially if you are going to need a home loan to buy the property.
2. Ask to view the property. This is where you need to do your homework and not just look at how cheaply you may get the property. Calculate how much it will cost you to repair the house, should this be necessary.
3. If major repairs are going to be required rather get an expert to give you a proper quote; doing the estimation yourself and getting it wrong can cost you dearly in the end.
4. You must establish that the house is in a good area, check the crime rate, availability of schools and close vicinity to main roads could all be important, depending on your personal circumstances or the reason why you want to buy the property.
5. Complete an offer to purchase and hand this to the bank.
6. Apply for home loan if this is going to be required. You may apply at any bank of your choice.
7. If the bank accepts your offer and your home loan finance is approved the normal process to transfer the property into your name will be set in motion by the bank.
The advantages of buying a repossessed house
On of the biggest advantages of buying a repossessed house is that you do not have to pay transfer fees on the transaction. The reason for this is that the bank, as the owner of the property, has to pay VAT should you buy the property from them. However, you will still be liable to pay the attorneys fees for registering the property in your name, as well as the bond registration fees. But the savings on transfer fees can run into thousands.
As the banks are keen to get rid of the properties in possession on their books you may be able to find a real bargain. The current recession experienced worldwide has not escaped South Africa. Even though the Reserve Bank has reduced rates over the last few months the relief was too late to save many home owners with huge overall debts. As a result the banks currently have more properties in possession than they would like to have.
The disadvantages of buying a repossessed house
Repossessed houses are often in a poor state of repair as the previous owner could not afford to spend money on keeping the house in good repair. Property is bought “voetstoots” or “as is” so you have no recourse to the bank once you have bought the property and afterward discover other defects.
If you want to buy a repossessed house make sure that the property is vacant. If the previous owner refuses to vacate the property or vagrants are occupying the property it could result in a legal mess that you do not want to be involved in.
Other issues when buying a repossessed house
Whether you are looking at buying a repossessed house for investment or as a home, it is important to make sure that the property is situated in a good area. Area is extremely important; it is no good buying a bargain if you will never be able to sell it again because of the area.
The Electrical Compliance Certificate that must be obtained before transfer can take place is for the expense of the buyer. The purchaser also needs to obtain a certificate confirming that the property is free from infestation by timber destroying or boring insects.
Buying a house is a serious financial transaction. Do not be in a hurry to do so – at the moment there is a growing supply out there so do your homework and you could be getting the bargain of a lifetime.