How to buy a property on which home loan is pending

NEW DELHI: Buying a resale property appears much simpler than buying an under-construction unit. However, there are some crucial checks and documents requirements before you enter into a legal contract. Every property transaction involves two key components – one is the physical verification of a property and the second is its legal due diligence. Sometimes, the second part is more important than the first as it ensures your investment is safe and without any legal dispute.

If you are planning to buy a resale property from a seller who has already taken a home loan on the property, then it is important for you to perform certain due diligence. Firstly, check whether the existing owner has any pending home loan, electricity and water charges or other dues on the property. You also need to check whether the property is owned by a single owner or it is shared. One should also check whether the property is leasehold or freehold. If the property is leasehold, then the seller needs NOC from the government authority.

You can either choose to ask the existing buyer to clear the home loan or if you are also planning to take loan to buy the property then you can apply for transfer of seller’s loan to your name. The bank will take your KYC and check your eligibility and then check the seller’s file and transfer the loan to your name.

Deepak Chowdhury, partner, Induslaw, explains, “The buyer must insist on a copy of all the title documents of the property for conducting a title due diligence to identify the risks, if any, on the property. The buyer will also require the title documents if he intends to obtain a loan for financing the acquisition of the property. The buyer should also request the seller to obtain a statement of loan outstanding (principal and interest (including penalty interest if any)) due from the bank wherein the home loan is pending, and a confirmation of the property documents mortgaged with the bank.”

Documents to check

The buyer has to verify all title documents in relation to the property:

(i) Deed of transfer in favour of seller and the property tax certificate issued by the concerned municipality in the name of the seller. In case the property is a flat/apartment situated in a high-rise building, check if the undivided share of the land over which the building has been transferred in favour of the seller;

(ii) Title documents for the past 30 years so that the title of the vendor/builder of the property can be established. Also procure a certificate of encumbrance from the concerned sub-registrar to assess all the previous title transfers and encumbrances on the property.

(iii) Sanction Layout, Building Permit, Occupancy Certificate, Zoning Regulation, Fire NOC (in case of high-rise building), permission for lifts installed at the building wherein the property is located.

(iv) No objection certificate for transfer of ownership and No-dues certificate from the Cooperative Housing Society/RWA of the building or the builder if he maintains the society.

(iv) Municipal taxes pending against the property. It would be advisable to also check the dues against the property that may be pending towards the electricity and the water departments. Also, obtain receipts to verify the tax paid by the present owner.

(v) An independent search needs to be conducted on show-cause/demand notices pending against the property or the building wherein the property is located.

(vi) Check if any litigation is pending against the property or the building wherein the property is located is a subject matter of a litigation against the builder/developer.

Is it safe to buy a property mortgaged to a bank?

Unless the property is subject to any litigation or exercise of mortgage rights by the bank, it is safe to buy a resale property pending mortgage. However, the buyer needs to insist on the closure of loan and a no dues certificate from the bank prior to purchasing the property. In case the buyer intends to take a loan for acquiring the property it is mandatory that the buyer moves a proposal to the bank from which it intends to avail loan and get a legal and technical clearance as well as obtain a sanction letter from the bank prior to the transaction.

Nikhil Varma, founding partner, MVAC-Advocates, Solicitors and Consultant, says, “The procedure to purchase a mortgaged property is not complex and in order to purchase such a property, the purchaser may either close the existing loan, or get a new loan from the same bank to close the existing loan or get a loan from another bank. It is imperative that the purchaser ensures that the seller provides them with the no-dues and no-objection certificates both from the bank and builder/RWA. There are instances wherein the agreement for such a transaction is a tripartite agreement making sure that the bank is aware of such sale and an active party to the same.”

Getting all the relevant documents is very important as then you can get bank approvals easily and also be able to register your property without any issue.

“Buying a house (be it a flat or an independent house) with an existing bank loan requires patience and time. If you are borrowing from a different bank, then one bank can pay to the other bank and take over the existing loan. However, if the bank is the same then internal loan transfer takes place, and you become the new owner after registering the property,” adds Aditya Chopra, managing partner, Victoriam Legalis – Advocates & Solicitors.

Make a checklist of the documents you have and then create a list of documents you require from the existing sellers before buying a bank mortgaged property. Pay only the token/booking amount when you have verified the owner, the property and have made sure it is good to buy.