Do you know it all about – The Sarfaesi Act?

The Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, allows banks and financial institutions to auction properties (residential and commercial) when borrowers fail to repay their loans.

It enables banks to reduce their non-performing assets (NPAs) by adopting measures for recovery or reconstruction.

Where can buyers get information about the auctions?
Banks advertise such sales in at least one English and one regional newspaper, 30 days prior to the auction. Alternatively, you can look at websites like foreclosure.com

How is the auction price decided?
It depends on the market value of the property. Professional valuers determine the property value based on which banks fix a reserve or minimum bid price. The valuations tend to be on the conservative side as it is a distress sale. If the price fetched exceeds the bank's dues, the excess amount is given to the borrower.

How can you bid?
Interested bidders must submit their bids in a sealed envelope to the bank. Along with the bid, they must also deposit a certain percentage of the reserve price as earnest money deposit. This amount differs across banks and is refundable if one withdraws from the process or does not win.

What are the pros and cons of such buys?
Typically, these properties are 20-30 %cheaper than the market price. Also, since the bank had previously lent against the property, there is clarity on property title.
However, these properties are sold on an 'as-is' basis. There may be pending dues or even litigations. These liabilities, unless checked carefully, can get transferred to you automatically.

Source: http://www.rediff.com/business
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