You are not liable to pay second charge dues 

2) bank has to approach DRT for recovery of its dues  

3) inform the second charge holder that property is being sold .

4) don’t purchase the property 

When purchasing a property through a bank auction where a second charge exists, your liability toward the second charge (Bank 2) depends on the extent of the property's sale proceeds and the terms of the auction. Typically, the first charge holder (Bank 1) will have priority in recovering its dues, and if the auction proceeds do not cover its debt fully, the second charge holder (Bank 2) may not receive any payment. However, the second charge remains recorded in property documents until the debt is formally settled or waived by Bank 2.

To address this, you should:

1. Review the Auction Terms: Ensure the auction terms specify the transfer of the property free of encumbrances, particularly any subordinate charges.

2. Communicate with Bank 2: Seek clarity from Bank 2 on their willingness to release the second charge after the auction. A no-dues certificate or NOC from them will help clear the title.

3. Conduct Due Diligence: Engage a legal professional to scrutinise the title and check for any potential complications arising from the second charge.

4. Court-Ordered Sale Protection: If the sale is court-ordered, it may extinguish the second charge, but this should be verified explicitly.

It is advisable to consult a legal expert to navigate this issue and ensure the title is cleared post-auction to avoid future disputes.
Thanks and Regards,
Advocate Aman Verma
Legal Corridor

It will not be your liability but the first bank liability as it has to provide you good title 

Dear Client,

Your liability regarding the second charge created by Bank 2 depends on the auction terms. If the property is sold by Bank 1 "free from encumbrances," it is the duty of Bank 1 to clear the second charge and transfer the property with a clean title. If the auction is on an "as is where is" basis, you could inherit the second charge and would have to negotiate with Bank 2 for its release or challenge its validity if created without Bank 1's consent. It is of utmost importance to do a proper title search and read the terms of the auction to know the extent of your risks. If Bank 2's second charge is subordinate and the proceeds of the auction are inadequate to pay Bank 1's dues, you may have legal remedies to wipe out the second charge to have a clear title. Tread with caution and seek the advice of a legal expert in this regard.

Dear Client,

In case the second charge created by Bank 2 is illegal, as you state, you maypurchase the property through the auction by Bank 1, after proper legal safeguards. Under the SARFAESI Act, the properties are usually sold "free from encumbrances", which means the first charge holder (Bank 1) should settle or clear any subordinate charges before transferring the title. If Bank 2's charge is indeed illegal and not validly registered or consented to by Bank 1, it may not legally bind you as the buyer.

But the problems would still be there if Bank 2 were to challenge the auction or seek to enforce its second charge. To reduce the above risk, insist that the sale terms specifically provide that the property is sold "free from encumbrances." Also carry due diligence and scrutinize all of the records from title verification down to legal verification for the invalidity of Bank 2's charge. I advise you consultwith a lawyer, who should haveexperience dealing with properties to monitor the sale, documentationprocess.

If the title and the auction process are clean, you will not be liable to pay Bank 2 or address its charge. Proceed only after all ambiguities regarding the second charge are resolved to avoid legal entanglements.

Litigation is long drawn and expensive proposition 

You may be successful bidder but you don’t want to get involved in legal hassles 

in the event second bank challenges Sale you will have to engage a lawyer pay legal fees hence advised you not to purchase property 

- it is showing that the defaulter was having loan transaction with the second bank as well with the bank1.

- Further, if you will purchase that property from the bank1 , then in the event of non-payment of the loan amount of the bank2 , this property can be a subject to recover the loan amount. 

- However, as the bank1 has sanctioned the loan amount after mortgaging the property document , and the said bank has got the possession of the property under the Sarfaesi Act, then the bank2 has no right to take possession of the property even to recover the loan amount taken by the defaulter. 

you can buy a bank auction property that is on charge with another bank, but you should do your due diligence and consider the following factors.

Confirm the authenticity of important documents, such as the original sale deed and the non-encumbrance certificate.

If the auction authority fails to deliver possession of the property within a stipulated time period, you can get a refund of your bid amount, interest, and damages.

Is it possible to get 2 mortgages from 2 lenders, simultaneously on the same property, borrowing half the amount from each lender?

Generally, this is referred to as fraud. The lender has a right to know any additional liens against the property, and if those aren’t disclosed, you could be in serious trouble. If lender B already knows about lender A, this would be a 2nd mortgage and would take a lesser position should a default occur.

Borrowing from two lenders becomes a problem when the borrower cannot pay back the loans so having two lenders is generally not permitted. As many of the other answers mention, the “foreclosure” process becomes extremely complex if there is more than one lender. To fully understand this, you have to understand why a bank will lend you money. In a scenario where a borrower cannot repay a loan, the bank takes ownership of the property and then tries to sell it to recover the money lent out. This process can generally be referred to as a “foreclosure”. If the bank cannot quickly take ownership of a property when the borrower fails to pay the loan (defaults on the loan) then a bank will NEVER lend out any money.

Now, the issue with two lenders is which of them will get the opportunity to sell the property after taking ownership (also called taking title to a property). If you were a lender in that case, you would fight tooth and nail for the right to the property because that's your money. The other lender will most certainly do the same so it ends up being a litigious process that costs time and money, something that hurts the value of the real estate. On account of this potentially huge conflict, most lenders will never allow another lender to have a lien (claim to the title upon a default) on the property.

However there is one exception to this rule. In commercial real estate, you can often have multiple lenders on the deal with “mezzanine debt”. In simple terms, you can have multiple lenders. In more technical terms, there is one lender who has priority to the asset (mortgage) and the other lender has priority to the equity. That seems like a small difference but it's actually pretty profound. This is best explained using an example.

If a mall is $100, the buyer can borrow $50 from a senior lender via a mortgage. This means if the mall declines in value to $50 or below (or based on another set of criterion), the senior lender can take title to the asset. The buyer may also borrow $30 from a mezzanine lender who has the right to take over the equity position. This means if the value of the property falls below $80 ($50 in senior loan + $30 in mezzanine loan), but is higher than $50 in value, the mezzanine lender has the right to step in as the owner of the property. This is a small nuance that lets a property by encumbered with debt from more than one source. Sometimes in a default/foreclosure, the lenders can fight for ownership. For example, if the property is valued at $51, the mezzanine lender takes over but if the property is valued at $49, the senior lender takes control. To resolve this, there are generally inter creditor agreements to determine who has priority in various scenarios.

You are not liable as it basically a fraudulent loan sanctioned by second bank to defraud creditors 

you would need court orders to set aside illegal creation of charge 

- The said property can create problem in future , as the title ifs not looking very clear. 

Charge 2 is collusive transaction between bank and borrower. Borrower having pledged the  property to bank 1 has not right  to again offer same property to bank 2. Charge of bank 2 is bound to fail. The  principle of law is, “no one can acquire any right  through his own fraud. It is the  duty of bank to ensure the  property is free from any encumbrances. Bank 1 did informed bank 2 of its first charge. There is also chairman connection. No problem in joining auction of property. The  principle in legal parlance is known as, nemo ex proprio dolo consequitur actionem,”  and is very well established.

The situation can be explained by analogy of a owner selling same property twice. In such case prior sale prevails over subsequent sale.

The property is involved under several fraudulent activities.

It appears to be that borrower has manipulated the loan papers and has done fraud on both the banks 

Hence it is not advisable to purchase this property 

You can claim the amount from bank one and ask for indemnifying the same

No to buy, Disputed property. Bank 2 has charge over it. 

.

Dear Client,

Considering all these additional details in which Bank 2, being a cooperative bank, and the borrower acting as chairman of this cooperative bank when the second charge is created without obtaining consent or NOC from Bank 1, it seems that the second charge is indeed illegal. Since the property is being sold under the SARFAESI Act, which generally ensures properties are sold "free from encumbrances," any subordinate or subsequent charges like the one created by Bank 2 should not legally bind you. The objections already raised by Bank 1 regarding the second charge further strengthen your position as a buyer. However, to safelycontinue, you should ensure you do due diligence to confirm the first charge in favor of Bank 1, the auction terms and conditions specificallystating a "free from encumbrances" sale, and all the property records available at the registrar's office, including the loan deed executed by Bank 2. If the second charge is found to be illegally registered, the registrar may rectify or cancel the registration based on proof of illegality, which canusually be established by a legal order or complaint. While Bank 2 may attempt to challenge the auction or enforce its charge, the irregularities in the creation of the charge by Bank 2would be very detrimental to their case. To further secure your interests, record Bank 1's objections to Bank 2's charge and request confirmation from Bank 1 that the property will be transferred free of encumbrances. If Bank 2 raises demands post-sale, you can defend yourself by referring to the illegality of the second charge and provisions under the SARFAESI Act, or seek a declaratory judgment from a court confirming that the second charge is unenforceable. While disputes from Bank 2 could arise, proper legal documentation and safeguards will protect your purchase. It is advisable to consult a property lawyer experienced in SARFAESI matters to ensure a clean title transfer and address any potential challenges, allowing you to proceed with confidence.