Buying a house via a bank auction may not be the first preferred mode of taking possession of a property. However, there is increasing interest around the aforesaid route.
Banks are allowed to conduct e-auctions of residential and commercial properties when there are loan defaults beyond a period of 60 days. Specifically, for residential properties such as apartments, independent villas, bungalows and so on, banks use the SARFAESI Act to retake possession and give a 30-day auction notice after the 60-day period (of non-payment of dues). They are allowed to proceed with the auction after this timeframe.
The e-auction platform of public sector enterprises, BAANKNET, has reportedly seen annual bidding value go up to ₹15,731 crore for the 12-month period ending June 2025, a threefold rise from just ₹5267 crore for the corresponding period in 2024.
The lure of a 15-30 per cent discount over market prices when buying through the auction mode makes many use the option for a potential bargain hunt.
However, the going may not be smooth as we imagine, as a buyer recently discovered in a case that was widely publicised.
A bidder won an auction for a property. This exercise was conducted by a public sector bank. Further, he paid over ₹2.16 crore, which was 25 per cent of the total amount, as required by the auction conditions. The bank had told the buyer that there was an ongoing legal case related to the property before the debt recovery tribunal.
What the bank did not inform the buyer was that there was another writ petition on the property. Also, the court had instructed the bank not to go ahead with the auction or finalise the sale of the said property. Further, the bank demanded the remaining 75 per cent payment and asked the buyer to take possession of the asset.
The buyer then approached the Telangana High Court seeking relief. Over time, the court ordered that the bank refund the amount (₹2.16 crore) to the bidder. The whole process took well over two years.
As a buyer in an auction, it is important to carry out due diligence on the documentation and operational aspects before making full payment and taking possession. Home buyers should note the following before opting for e-auction purchases.
Documents and legalities
One assumption is a bank would have all things in proper order and winning the bid, making the payment and taking possession would be seamless. That may not always be the case.
There are instances of encumbrances associated with the property that is auctioned. There could be other legal claimants to the property. These other claimants may challenge the auction process or stop the transfer of title to you. The pre-auction loan defaulter could also have stays imposed on the auction/possession via the courts as we saw in the earlier case.
In case there are multiple banks that have given loans to the defaulter, these other lenders may lay claim to the auction proceeds.
Then there are instances where the title deeds are not clear or even missing.
The bank may have given a loan even when the title deed was defective.
Another important aspect is the illegality in the construction itself where a builder or even the earlier occupant/defaulter may have made extensions to the property with deviations or built more than the legally sanctioned number of floors.
You cannot take the bank to court over any such issue that crops up except when it fails in statutory disclosures.
Therefore, you must seek a reasonably reputed property lawyer’s services and have the entire gamut of legal documentation, constructions and so forth, checked thoroughly before entering the auction. It may cost you a hefty fee, but that is worth the effort/time to save you from sinking your money in a property that is stuck in a legal and documentation quagmire.
Operational hurdles
While the documentation is one aspect of the challenge in acquiring auctioned properties, there are some related to the physical aspects itself.
When a bank takes over a defaulter’s property, it is often a symbolic possession and may not mean a fully vacated property.
The defaulter of the loan may still be living in the property. Another case may be that the owner may have rented the property to someone else.
In these cases, if these parties (owner or tenant) refuse to vacate and create a ruckus, it is solely upon you to have them moved out of the property; the bank will not no be able to help you in this regard except giving you a legal title to the property.
Another important aspect pertains to unpaid bills on multiple fronts.
For example, if the auctioned property is a flat in an apartment complex, the previous owner may not have paid maintenance bills for months.
Also, there could be cases where statutory levies such as property, water and sewerage taxes may be in default.
Finally, the physical condition of the property also has to be examined thoroughly. Cupboards, bathroom fittings, door locks, balcony sliding doors and any pest infestation and the like must be checked for.
You will have to factor in these aspects at the auction and tailor the bid accordingly to make the property discount really worthwhile.
Additionally, making financial provisions for such likely extra costs would help plan your purchase smartly.
Published on November 8, 2025
