Out of court sales of stressed assets or mortgaged immovable properties are invaluable recourses to enable banks and financial institutions to recover debts where the debtor has defaulted. They also reduce the overall number of non-performing assets. Such sales can be made either through public auctions or by way of a private treaty with a willing buyer.
A stressed asset is an asset repossessed from a defaulting borrower by a secured creditor. Bona fide purchasers of a stressed asset must carry out thorough due diligence in order to safeguard their own interests. In this way they will discover any defects in, or fetters on, the title before buying such an asset. In this article, we highlight some of the hurdles faced by bona fide purchasers at the time that they acquire such stressed assets.
Partner
Vidhii Partners
A frequent challenge to the acquisition of stressed assets is where third parties are found in occupation and possession of such properties. Such third parties may appear to be tenants, lessees or licensees. It is not unknown for the defaulting borrower to create such relationships after the mortgage has been created. This is done in order to prevent the bona fide purchaser taking possession after the purchase has been completed. Often the purchaser may find that there is ongoing litigation involving occupants. Such occupants resist giving up possession.
This may delay the transfer of right, title and interest in favour of the purchaser, in consequence of which there may be a significant drop in the price of the asset. The purchaser, even post acquisition, is forced to begin protracted and costly litigation to evict the occupants and often suffers great delay in gaining possession. Those in unlawful possession usually fail to maintain the property, leading to greater than usual dilapidation.
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Vikram Wadehra is a partner and head of the Kolkata office of Vidhii Partners. Soumava Ghosh is an associate at the firm.
Vidhii Partners
Chatterjee International Centre,
Office No. 13, 18th Floor,
33A, J.L. Nehru Road,
Kolkata – 700 071.
New Delhi | Mumbai | Bengaluru
Contact details:
Fax: +91 22 4355 8550
Email: vidhii.mumbai@vidhiipartners.com
Website: www.vidhiipartners.com
