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Buying Repossessed Properties: Risks and Steps
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A Mortgagee Sale refers to a property that is repossessed and sold by a bank or financial institution after the owner defaults on mortgage payments, in order to recover the loan. The appeal of Mortgagee Sales lies in the fact that the selling price may be below market value, but buyers should note: the contract terms favor the mortgagee, including no guarantee of vacant possession, no responsibility for unauthorized structures, and no clearance of outstanding debts, with risks borne by the buyer. Therefore, it is essential to fully understand the purchasing process and potential costs before deciding to enter the market.
2. How to Find Repossessed Properties?
Real Estate Agents
- Many large agencies have dedicated pages for bank-owned properties, providing real-time information and assisting with bidding or contacting banks
- Advantages: Information is faster, can arrange property viewings
- Disadvantages: Limited options, commissions and processes need attention
Auction Houses
- For example, Chung Sen Auctions, Asia Auction Property, regularly hold auctions, with announcements published on their official websites or in newspapers
- Advantages: Concentrated choices, sold to the highest bidder
- Disadvantages: Fast-paced bidding, easy to overbid impulsively; requires on-site deposit payment
3. Two Major Purchase Methods
There are primarily two ways to purchase bank-owned properties: public sale and public auction.
Public Sale Process
- Appoint an Agent: Buyer finds a real estate agent to assist
- Property Viewing: Visit the property with the agent
- Submit a Bid: Fill out the bid form and pay a temporary deposit (approximately 3%–5% of the property price)
- Bid Closing and Award: The bank sells the property to the highest bidder; if below the reserve price, it may be re-tendered
- Sign a Provisional Sale and Purchase Agreement
- Arrange a Mortgage for the Bank-Owned Property
- Sign the Formal Sale and Purchase Agreement
- Property Transaction Completion
Public Auction Process
- Data Collection: Pay attention to auction announcements, property details, time and location
- Title Search: Engage a lawyer to check the deed, confirming title ownership and charge status
- Prepare funds or arrange pre-approved mortgage for bank-owned properties
- On-site Bidding: Highest bidder wins, but the bid must exceed the bank's reserve price
- Sign Contract and Payment: Successful bidders must immediately pay 10% of the property price as a deposit and sign the formal sales contract
- Document Requirements: If bidding in a company's name, provide documents such as company registration certificate, annual return, and board meeting minutes
4. Hidden Costs of Buying a Repossessed Property
- Legal and Contractual Risks
- Repossessed properties are sold "as is," with no guarantee of vacant possession or handling of unauthorized structures
- Some unpaid rates, management fees, or government rent may need to be borne by the new buyer
- Auction-Related Fees
- Upon winning the bid, a 10% deposit on the property price must be paid immediately
- The buyer needs to pay an additional auction house commission (typically 1%, with a minimum amount)
- Renovation and Clearing Costs
- Most units require extensive renovation or clearing of leftover debris
- The budget should include extra for renovation, pest control, moving, and the management office's renovation deposit
- Mortgage Limitations
- For units with unauthorized structures or document flaws, banks may only approve low loan-to-value ratios or even reject the application
- It is recommended to obtain Approval in Principle (AIP) first to avoid the risk of forfeiting the deposit
Repossessed properties are not "definite bargains." They may indeed be priced below market value, but they come with hidden legal, time, renovation, and financial costs. Prospective buyers must choose the appropriate path among the three major purchasing channels, familiarize themselves with the public sale and auction processes, and clearly calculate the hidden costs. Only after a comprehensive risk assessment can a repossessed property become a reasonable choice for home buying or investment.
