Buying at a bank auction in Kenya, step by step

Bank auctions are where Kenyan property is bought at a genuine discount, and also where inexperienced buyers lose deposits. The discount is real because the seller is a lender that wants its money back, not a homeowner hoping for a top price. The risk is real because you buy the property as it stands, with whoever is living in it, and with no seller to hold to a warranty. Here is the process from the first notice to the title in your name.

How a property reaches the auction floor

A lender exercising its statutory power of sale under the Land Act 2012 has to follow a sequence of notices. The borrower gets a demand and a period to remedy the default, then a notice that the lender intends to sell, then the auctioneer serves a further notice of at least 40 days before the sale. The lender must obtain a valuation, and the property cannot be sold for less than 75 percent of its market value at the time of sale. That floor is why "auction" does not mean "half price".

The borrower has the right to redeem the loan at any point before the hammer falls. A property advertised this month may be pulled the day before, usually because the borrower paid up or obtained an injunction. Do not spend heavily on due diligence until you have confirmed with the auctioneer, the week of the sale, that the lot is still going ahead.

Where auctions are advertised

Auctioneers licensed under the Auctioneers Act publish notices in the daily newspapers at least 14 days before the sale, giving the parcel number, location, description, the date and venue, and the viewing arrangements. Most large auctioneers now also list on their websites and mailing lists, and lenders publish their own schedules. Nairobi sales run most weeks; upcountry sales are less frequent and less contested.

Due diligence, in the order that saves money

1. Official search. Pull it yourself through Ardhi Sasa or eCitizen. Confirm the registered owner matches the borrower named in the notice, that the lender's charge is on the register, and note every other entry. A second charge, a caution from a co-owner, or a court order will complicate the transfer.
2. Physical visit on the viewing day. Auction notices describe the property as it was valued, sometimes years ago. Check whether the house exists, whether it matches the description, and who is in occupation.
3. Ask who is living there. A borrower still in residence, a tenant with a long lease, or a relative claiming an interest are all your problem after the sale. Vacant possession is not the lender's obligation. Eviction through the courts can take a year or more.
4. Arrears that follow the land. Land rates at the county, ground rent, and service charge on a sectional unit remain due. Ask the management company for a statement.
5. Read the conditions of sale. Each auctioneer's conditions set the deposit, the balance period, and what happens if you default. Ask for them in advance.

On the day

Bidders register with the auctioneer and are usually asked for a refundable bidder's deposit, typically by banker's cheque for an amount the auctioneer sets in the conditions of sale, before they are allowed to bid. The reserve price is not announced. Bidding is fast; the auctioneer will close the lot within minutes once bids stop.

If the hammer falls to you, the Auctioneers Rules require you to pay 25 percent of the purchase price immediately, in cleared funds. Turn up without it and the lot is re-offered and you may be liable for the shortfall. The balance is normally due within 90 days, though individual conditions of sale can shorten this to 45 or 60 days. Bank financing for auction purchases is possible but the timeline is tight, so have the pre-approval done before you bid.

Miss the balance deadline and the 25 percent is forfeited. There is no grace period by right.

After the sale

The lender, as chargee, signs the transfer in place of the borrower. You still pay stamp duty at 4 percent (2 percent outside municipalities) to KRA, and you still need land rates and rent clearances to register. Registration takes the same six to twelve weeks as any conveyance. Only once the title is in your name should you approach any occupant, and you should do it through your advocate.

The traps

• Injunctions after the sale. Borrowers sometimes challenge the notices in court after the hammer has fallen. If the lender skipped a step, the sale can be set aside. Your remedy is a refund, not the property, and possibly a long wait for it.
• Family land. Agricultural parcels sold without the borrower's spouse having consented to the original charge are fertile ground for litigation.
• Sectional units with unpaid service charge. Management companies can refuse to sign off on the transfer until arrears are settled, and the arrears can run to years.
• Emotional bidding. The floor is 75 percent of value. If you find yourself at 95 percent, you have paid a market price for a property with auction-grade problems.

Auction buying rewards preparation and punishes optimism. Do the search, visit the site, secure the funds, set a ceiling, and be willing to walk out.

If you are considering an auction lot, send us the notice. We will run the search, check the conditions of sale and tell you what the property is worth before you register to bid.