• Auctioned property purchase

Hi,

I have chosen an auctioned property for purchase and went through the auction and was the successful bidder. I have also paid 25% of the amount to the DRT team now and have to pay rest of the 75% amount within 15 days. I came to know that the borrower has sold the property to someone else just the year before the property being mortgaged. We also came to know the person who has purchased the property is visible in the Encumbrance certificate. Also the same person has filed a case against DRT as the auction being conducted(first time) by DRT long back( The case is still pending). Now we have successfully bidded(4th time auctioned by DRT in last 2 years). However the concerned bank and the DRT team says we would be the legal owner of the property as they will provide clear title on it.

Please help me with the below questions.
1) If we purchase the property, will the borrower or the third person(who purchased the property from the borrower and name reflecting in EC) can file case against us.
2) There is only 7 days left with us now and want to know if there is any condition or claim we can put on the bank to avoid any litigation's in future. ( We want to purchase the property as we are very much interested in it)

Note: The bank which is selling the auctioned property is ready to give us home loan as well for the property.

Thanks in Advance!
Asked 2 years ago in Civil Law from Hyderabad, Andhra Pradesh
1) borrower must have deliberately created third party right to thwart the sale . 

2)  how could the borrower mortgage the property if he had already sold it to third party? 

3) if the purchaser had filed case against the bank was any stay granted by DRT? 

4) take search of the recovery proceedings pending in DRT

5) if property is auctioned by DRT you would have clear title to the property . 

6) the third party can challenge the sale on grounds that he is bona fide purchaser of value . that full consideration has been paid to borrower . 

7) if you are purchasing the property on making full payment sale would be confirmed by DRT . 
8) take home  loan from bank for purchase of the property
Ajay Sethi
Advocate, Mumbai
23367 Answers
1224 Consultations
5.0 on 5.0
1) ideally you should wait the suit filed by purchase has been disposed of . 

2) you have already pad 25%of the consideration . there must be clause in terms and conditions of sale that in event auction purchaser fails to pay balance consideration earnest money paid would be for forfeited 

3) you can make an application for refund of your 25%deposited as third party has claimed to be owner of the property by regd sale deed . unless the pending litigation is disposed of you would have Damocles sword hanging over your head . 

4)you would get refund In the event of the said sale in favour of the Bidder not
being  confirmed by AO, otherwise than on account of the
wilful default of the bidder or if the sale is set aside by an
order of the Court/Tribunal, then in that event the sale shall
be void and the bidder shall, in that event be entitled only to
receive back his/her/their Earnest Money Deposit (EMD) or
purchase money as the case may be, but without interest and
the bidder shall not be entitled to be paid his/her/ their costs,
Ajay Sethi
Advocate, Mumbai
23367 Answers
1224 Consultations
5.0 on 5.0
1) the issue that would arise was whether you were aware of the encumbrance . ?

2) if you were aware and yet submitted your bid you cannot now refuse to pay balance 75%

3) bank would refuse to refund your 25%of earnest money paid by you 

4)  the Madras High Court in Jai Logistic's case
(supra) has observed in para no.5 as under : 
“We have considered the submissions.     Of
course, in the aforesaid judgment, the Supreme Court,
while considering a sale by the Official Liquidator, has
held that it is the duty of the intending purchaser to
satisfy   himself   as   to   the   encumbrance   before
participating in the bid.     Having participated in the
bid,   the   intending   purchaser   cannot   later   on   turn
around   and   question   the   Official   Liquidator   on   the
ground that the encumbrance was not notified.   In that

case, the provisions of the Rules as applicable in the
present   case   are   not   applicable   to   the   Official
Liquidator.  But in the case on hand, once possession
is taken over under section 13(4) or under Section 14 of
the   SARFAESI   Act,   whenever   the   secured   creditor
contemplates a sale of immovable property, they will
have to follow Rule 8 of the Rules of 2002.  Rule 8(6)(f)
mandates the secured creditors to set out in the terms
of  sale notice  any  other thing which the  authorized
officer considers it material for a purchaser to know in
order to judge the nature and value of the property.   A
reading of the said rule, in our opinion, would also
include the encumbrance relating to the property.   We
are inclined to read the rule in that way keeping in
mind the interest of the intending purchaser to be put
on notice as to the encumbrance, as otherwise he/she
will   be   purchasing   the   property   and   simultaneously
buying   the   litigation   as   well   and   an   intending
purchaser may not bid in the event he/she came to
know of any encumbrance over the property.  That is
why the rule specifically contemplates a provision for
the   authorized   officer,   while   notifying   the   sale,   to
specifically state as to the encumbrance.   It will be a
different issue in the event the auction notice indicated
that it is the duty of the intending purchaser to verify
not only the encumbrance by way of alienation of the
property, but also the other statutory liabilities and in
::: 
that case, the intending purchaser cannot later on turn
around and seek for either the refund of the earnest
money   deposited   or   insist   the   bank   to   clear   the
encumbrance.  In the absence of such indication in the
sale notice, in our considered view, the respondentbank
would not be justified in compelling a purchaser
to go ahead with the sale by depositing the balance
sale consideration together with the encumbrance.”
Madras High Court, therefore, allowed the writ petition
and set aside the impugned order of forfeiture.
Ajay Sethi
Advocate, Mumbai
23367 Answers
1224 Consultations
5.0 on 5.0
Banks do all tricks to recover their housing loan debt.  Here is a case where you were not informed about the EC which is in some others name. 

You on your part have been negligent in obtaining EC of the property or making a site visit to the property and obtaining the details of the property sold.

Neverthless the bank has played fraud on you auctioning a property which owner is someone else.  

The third party ie., the present purchaser can enter as an objector and file a memo and an affidavit to set aside the sale.  

The objector has to show that he had no notice of the auction by the Recovery Officer.   The bank has supressed the facts of auction and has gone on this sale is very clear. 

It is not a good sale by the bank and you need to work it out with the bank and the Recovery Officer the next step that you wish to take.
Bhaskaran
Advocate, Bangalore
21 Answers
0 Consultations
Not rated
Were you aware at the time of submitting the earnest money that the property was already sold. If knowing fully well that the property was already sold you have paid the earnest money, you will have to pay the rest of 75 pc as well. However you may write to the auction authorities seeking time until the pending suit is disposed of.

It is advisable that you proceed against the bank stating that a fraud has been played on you. Proceed with payment only after you are clear about the title of the property.
Shaveta Chaudhary (Sanghi)
Advocate, Chandigarh
821 Answers
60 Consultations
5.0 on 5.0
1. DRT cannot provide a clear title if the property is under encumbrance. They will wash their hands off after getting the remaining amount leaving you to defend lawsuits in the courts. 

2. If you had knowledge of the encumbrance of the property at the time of payment of earnest money then you cannot avoid paying the remaining amount. On your part you were equally negligent in not conducting due diligence. 

3. What is the outcome of the recovery proceedings in DRT, needs to be ascertained.

4. You can apply for refund of your earnest money in view of the fact that third party rights have been claimed and the case is pending in the court. The amount may not be refunded to you, but it is in your interest to wait till the outcome of the case before deciding to pay the remaining amount. 

5. The bank may also initiate proceedings for recovery of balance amount against you.

6. You can proceed against the bank to recover your earnest money as the bank played fraud on you. It is not advisable to purchase this property as it is disputed.
Ashish Davessar
Advocate, Jaipur
18183 Answers
449 Consultations
5.0 on 5.0
1. It is not clear whether you are going to purchase the property through E-Auction conducted the Bank as per SARFAESI Act or conducted by DRT as per Recovery of Debts Due to to Banks and Financial Institutions Act,

2.If the property was sold one year before it was mortgaged, then how did the Bank created mortgage on the property when the mortgagor was not its title holder? Was the said sale deed registered? If not then the said sale deed will not be treated as valid & you can buy the property. If it was registered, the said mortgage was a bad mortgage. Don't buy it,

3. In case DRT is selling it, then it will not sell only mortgaged property, it can sell any property of the Borrower to recover the certificate dues. here also if sale deed of the property was registered before it was attached by DRT, if any, then do not buy it.
Krishna Kishore Ganguly
Advocate, Kolkata
12143 Answers
233 Consultations
5.0 on 5.0
1. In your second post you mentioned "the bank has seized the property in 2011". When was it mortgaged? Certainly it was mortgaged before it was seized. Actually may be that the Bank has taken possession of the property u/s13(4) of SARFAESI Act,2002,

2. On the other hand in your first post you have mentioned " I came to know that the borrower has sold the property to someone else just the year before the property being mortgaged ". Which amongst the above two statements are correct?

3. If the sale has been registered by the mortgagor after the property was mortgaged with the Bank, then you can buy the property safely,

4. It the property was sold by the mortgagor by registering the sale deed before it was mortgaged, then it was a bad and illegal  mortgage and you should not buy it,

5. Hope you have already conducted search of the documents from the Bank.
Krishna Kishore Ganguly
Advocate, Kolkata
12143 Answers
233 Consultations
5.0 on 5.0
1) you should not have made 25%payment . you were aware that suit filed by third party is pending . his name is shown on encumbrance certificate . 

2) mortgagor could not have sold property to third party without bank consent . bank will have to move court to set aside fraudulent sale deed made by original borrower 

3) although chances of third party winning case are bleak as on date the name of purchaser is shown on encumbrance certificate . 

4) if you default in making payment bank will forfeit the 25%earnest money paid by you . 

5) title to property is not clear and marketable .
Ajay Sethi
Advocate, Mumbai
23367 Answers
1224 Consultations
5.0 on 5.0
1. You should have carried out due diligence before paying the advance amount. The predicament you are facing could have easily been avoided. Be that as it may, a property which is under mortgage cannot be sold until the mortgage is cleared. Title will not pass to you if the property was sold during the existence of mortgage.

2. The bank can challenge the sale in the court which can declare it as illegal.

3. The pendency of the case should further set alarm bells ringing. 

4. Purchasing this property will be an invitation to multiple litigation.
Ashish Davessar
Advocate, Jaipur
18183 Answers
449 Consultations
5.0 on 5.0
1. You have mentioned "We have purchased the property through online auction conducted by DRT as per Recovery of Debts Due to to Banks and Financial Institutions Act, 1993",

2. It can only happen if the Bank has filed Original Application (O.A.) before the DRT and after getting the order from the DRT (after hearing the mortgagor/borrower) to recover the outstanding, the Recovery Officer of DRT issues E-Auction Notice to sell the property and recover the said outstanding amount,.

3. In the above case DRT attaches property and appoints receiver before issuing the eauction notice,

4. It appears to me that your have purchased the property against E-Auction notice published by the Bank as per SARFAESI Act,2002,

5. However, if the mortgage was created before the said mortgaged property was sold then the said sale is invalid,

6. If you can get physical possessio9n from the Bank, you can buy the said property,

7. Make sure you collect the  Saler Certificate issued by the Bank and all related documents including letter confirming deposition of the original title deed and also the original title deed,

8. Do not buy unless you are sure to get physical possession of the said property..
Krishna Kishore Ganguly
Advocate, Kolkata
12143 Answers
233 Consultations
5.0 on 5.0

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