The SARFAESI Act and Property Valuation
The Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act, 2002 empowers banks and financial institutions to recover non-performing loans by enforcing security interests — primarily mortgaged property — without court intervention.
Before a bank can take possession of a property and sell it at auction, it must obtain an independent valuation from a qualified valuer.
What Does a SARFAESI Valuation Cover?
A SARFAESI valuation report prepared by a registered valuer typically includes:
1. Market Value
The most probable price at which the property would sell in an open market transaction. This is based on comparable sales, locality demand, and current market conditions.
2. Distressed Sale Value
A discounted figure representing what the property might realistically fetch at a forced auction with limited marketing time. Banks use this to set reserve prices.
3. Structural Condition Assessment
An evaluation of the physical condition of the property — whether the structure is sound, any encroachments, extent of improvements, age of construction.
4. Legal Compliance Check
Verification that the property description matches the mortgage documents, including survey numbers, extent of land, and built-up area as per approved plans.
The Valuer's Role
The valuer appointed for SARFAESI purposes must:
- ·Be registered with the IBBI or approved under the respective bank's panel
- ·Conduct a physical site inspection
- ·Prepare a certified report in the format prescribed by the bank
- ·Sign and seal the report with their registration credentials
Banks typically require at least two independent valuation reports before setting a reserve price for auction.
Common Issues in SARFAESI Valuations
- ·Inflated original valuations: Some properties were mortgaged based on inflated valuations. The current fair value may be significantly lower.
- ·Market changes: Property markets can shift significantly between the original loan disbursement and the enforcement date.
- ·Encumbrances: Subsequent liens, legal disputes, or revenue entries that affect marketability.
For Borrowers
If you believe a SARFAESI valuation is unfairly low, you have a right to contest it before the Debt Recovery Tribunal (DRT). An independent valuation from a certified professional can support your case.
RK Values has extensive experience in both bank-appointed SARFAESI valuations and independent counter-valuations for borrowers.