UNDERSTANDING DISTRESSED PROPERTY

by Taryn Davies Stevens • 3 MIN • 526 Words

Facing property repossession is a homeowner's worst nightmare, especially in today's economic climate, where changing interest rates and increasing living costs have led to a rise in distressed properties.

In recent times, banks have sought fair solutions for defaulters through assisted property sales programs, altering the landscape of distressed sales. Generally, there are three types of distressed properties: sales in execution, bank-mandated sales, and properties in possession.

1. SALE IN EXECUTION:
A sale in execution occurs when a borrower consistently defaults on their bond repayments. The bank initiates the process by obtaining a judgment against the defaulter, leading to the attachment and auctioning of their moveable assets. If the auction fails to cover the arrears, the property itself is sold in execution. These sales are conducted through auctions with a minimum reserve price set by the bank to prevent selling properties at unreasonably low amounts. The buyer is required to pay a 10% deposit along with the sheriff's commission immediately after the auction, so having the necessary funds ready is crucial.

2. BANK-MANDATED SALE:
In a bank-mandated sale, a property owner voluntarily hands over the property to the bank for sale when they can no longer afford the monthly repayments. These sales are usually set at more realistic market-related prices. The bank appoints an estate agent to handle the sale, and the seller retains the right to decline offers, though reasonable ones may still be considered.

3. PROPERTIES IN POSSESSION:
If a property doesn't sell at auction or with a bank mandate, the bank repossesses it, and it becomes a property in possession. Offers for such properties are made to the bank through an appointed agent and can be accepted or declined at the bank's discretion. Since repossession is a last resort for banks, they may be more willing to consider offers on the lower end of the price scale.

PROS AND CONS OF BUYING DISTRESSED PROPERTY:

Regardless of the type of distressed property, there are advantages and disadvantages that buyers should consider:

PROS:

The potential to find exceptional bargains in areas that might otherwise be unaffordable.
Favourable terms and conditions, such as preferential borrowing rates and no transfer duties (though transfer fees may apply).
The opportunity for quick returns on investment if the property can be bought and resold at prevailing market prices.

CONS:

Properties are sold "voetstoots," as-is, which means the buyer takes on any existing issues with the property.
Access to view properties might be restricted by current owners or tenants.
Offers on distressed properties must be clean, meaning they should not be subject to financing or the sale of another property.
The transfer of distressed properties might take longer than a standard house purchase.
Buyers may be liable for any outstanding levies, rates, and taxes related to the property.

In conclusion, buying distressed property can be a lucrative venture, but it requires careful consideration, knowledge, and the ability to act swiftly when opportunities arise. Knowing the potential risks and rewards, seeking professional advice, and being financially prepared can make all the difference in securing a successful deal.

For more information on residential property purchases, contact INTRO REAL ESTATE, it’s the right choice.

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