“A Guide to Safely Navigating Bank-Owned Property Purchases”

Purchasing foreclosed properties from banks is becoming increasingly common. These homes are often sold at a discount compared to market prices as the owners are typically in financial distress and unable to service their loans.

However, buying foreclosed properties comes with its own set of risks. Firstly, as the property is mortgaged, the land use right certificate and related documents are usually held by the bank, making it difficult for prospective buyers to access accurate information about the land and the property.

Secondly, disputes among co-owners may arise, complicating the sales process. Additionally, transferring ownership can be time-consuming as it requires the consent of the mortgagee, which is the bank.

Hence, experts advise that a tripartite agreement between the seller (mortgagor), buyer, and bank (mortgagee) is necessary when engaging in such transactions. This agreement should outline the rights and obligations of each party regarding payment, breach of contract, and handling of the mortgaged asset.

To safeguard their interests, buyers should carefully review the terms of the agreement, ensuring they are specific and clear, with well-defined responsibilities and obligations for each party, including provisions for potential contingencies.

In addition to the tripartite agreement, when purchasing a mortgaged asset, the buyer should make the payment directly into the seller’s account at the bank. Subsequently, the buyer requests the bank to freeze the account.

Afterward, the mortgagor, mortgagee (bank), and the third-party buyer sign a tripartite agreement. The bank agrees to allow the sale of the mortgaged property and will only unfreeze the account once the property transfer process is complete.

Finally, the mortgagor removes the mortgage registration at the Land Registration Office upon obtaining the tripartite agreement.

In cases where the sale proceeds exceed the seller’s debt to the bank, the buyer pays the bank an amount equivalent to the principal and interest to settle the seller’s loan. The bank then releases the mortgage and returns the property ownership documents to the seller.

The seller and buyer then agree on the settlement of the remaining sale proceeds after deducting the amount paid to the bank.

Once the mortgage is removed, and the land use right certificate (red book) is retrieved, the parties proceed with the property sale notarization process as per regular procedures.

Experts caution that purchasing foreclosed properties involves higher risks and complexities compared to regular real estate transactions. Therefore, buyers should approach these deals with caution and conduct thorough due diligence.