How to buy a property on which home loan is pending
April 12th, 2021
At the outset, it may seem simpler to buy a resale property than buying an under construction unit. But there are some documentation pre-requisites and critical checks before you enter into a binding legal contract with the seller. There are 2 key aspects to any property purchase transaction – physical verification of the property and its legal due diligence. Due diligence is the most crucial component of property purchase as this factor ensures the safety of your investment and avoidance of any legal dispute.
If you have decided to purchase a property from a seller who has a home loan pending on the property, you must perform more stringent checks and document verifications.
If you are looking to buy a property from a seller who has not paid off the home loan on it, you must first check the amount of the home loan outstanding, and other pending charges with respect to water or electricity charges. You must check if the property is owned by an individual or is a shared one, whether it is freehold or leasehold. If the property is leasehold, then the seller must obtain an NOC from the government authority.
There are 2 ways to deal with an existing home loan on a property. You can either request the seller to pay off the home loan or you can request for a transfer of the loan to your name if you are looking to apply for a home loan yourself. The bank will verify your KYC, check eligibility, seller’s credentials, and initiate the process of loan transfer to your name.
How can the party sell when a loan is outstanding?
The seller can sell the property after procuring the approval or consent from the lender. This must be done in a way so that a portion of the sale proceeds will be paid directly to the lender or the financial institution and the left-over amount will go to the current owner/seller.
Once the seller receives consideration for the total loan amount, the lender will hand over the original title deed document of the property that is deposited with the bank at the time of loan disbursement to the current owner. Typically, release of the original deed by the bank, registration of the sale deed and execution of sale consideration happens simultaneously.
The seller can sell his property with an unpaid loan only under 2 conditions:
He receives the permission from the buyer and then pays off the loan dues with the bank. He then obtains the original property documents from the bank and completes the sale to the buyer.
He transfers the pending loan to the buyer of the property after obtaining what he has paid already plus any extra amount he has promised the buyer. The bank will perform due diligence before approving this transfer by checking the income of the new buyer and doing his entire KYC.
Documents to be verified by the buyer while purchasing a property that has an outstanding loan
The buyer must verify all the documents given below before finalizing a property purchase that has an outstanding loan:
- Transfer deed of the seller and property tax certificate issued by the municipality in the seller’s name. If the property is situated in a flat or a high rise building, ensure that the undivided share of land of that building is transferred to the seller’s name.
- Title documents to establish the title of the builder or vendor of the property of the past 30 years.
- Certificate of encumbrance must be obtained from the sub-registrar to assess all previous title transfers and encumbrances of the property.
- You must procure and check the Building permit, Sanction layout, Occupancy Certificate, NOC, Zone regulations, and lift installation permission.
- A NOC for transfer of ownership and a No-dues certificate from the co-operative housing society of the building or the builder who maintains the society.
- Details of municipal taxes pending on the property. You must also check for dues if any towards water or electricity charges. Also procure receipts to verify the tax paid by the current owner.
- Conduct research on the cause and demand notices pending against the building or the property on which the building is situated.
- Check if any legal case is pending against the building or the property on which the building is located or any subject matter of litigation is pending against the developer.
How safe is it to buy a mortgaged property
Unless the property has any legal case pending or is on mortgage, it is quite safe to buy a property with a pending loan. But the buyer must ensure the closure of the loan and having a no dues certificate from the bank before he completes the property purchase formalities. In case the buyer needs to take a loan for the property purchase, he must submit a proposal to the bank that is lending the amount, obtain a legal clearance and a letter of sanction for the loan.
Purchasing a property on which home loan is pending needs a lot of research, time, and patience. Once you get the relevant documents in order with all the necessary information, you can purchase and register the mortgaged property without any issue.