News: Is your property mortgaged by builder to bank?-02-09-2019
Updated On: September 02, 2019
Since the builder did not repay the loan, the bank served notices to the residents.
‘Ignorantia juris non excusat’ is an old saying in law but this has more relevance in real estate today. What does this really mean? It means that ignorance of law is not an excuse and you cannot escape from your responsibility by saying you did not know the law. In fact, it is harmful not to know the law.
Recently, more than 200 residents living in a Noida housing society - Gardenia Gateway – were served with notices by the Union Bank of India asking them to vacate their flats as these had been mortgaged by the developer to the bank for a loan of Rs 78.45 crore.
Since the builder did not repay the loan, the bank served notices to the residents. A builder cannot sell flats he has mortgaged to a bank. Since the sale of already mortgaged flats is illegal therefore, banks may take possession of such flats to recover dues.
How to check?
In the past, there have been many cases where builders have pledged the entire property with banks to raise money, only to disappear, leaving behind unfinished projects. You are required to do due diligence before and after the purchase till the time of registration of your property.
You can avoid this situation by just being a little careful. You need to follow three simple steps to find out whether your property is mortgage-free or not. “You can check the records in the registrar office. You can go to the website of the Ministry of Corporate Affairs and click the link (http://www.mca.gov.in/MinistryV2/master+details.html) to find out about the company’s financial liabilities. Thirdly, this option may not be viable to buyers but they can issue a public notice saying that anyone can raise an objection on the property they plan to buy,” says lawyer Abhilash Pillai, partner, Cyril Amarchand Mangaldas.
The Central Registry of Securitisation Asset Reconstruction and Security Interest of India (CERSAI), notified on March 31, 2011, to help you find whether the property you are buying is mortgaged or not. This company was incorporated by the Department of Financial Services under the Ministry of Finance.
CERSAI acts as a central registry that keeps records of all properties against which loans have been sanctioned. You can access the central registry’s database on their official website -https://www.cersai.org.in/CERSAI/JSP/index.jsp. Details such as registration number or the address of the property will help you access information on its loan status.
Role of buyer or society body
You can also ask for an NOC from the builder that there are no dues on the society or flats sold by him. The same can be sought by the society body before taking over charge from the builder. One cannot say that they did not know that the builder has taken a loan on their property. It is your responsibility as a buyer to investigate and check whether your property is free of all legal defects or not.
“Sometimes the mortgage loan would be on an unregistered deed hence, it escaped the entry in the encumbrance certificate and you or the lenders could not find an adverse report to this effect in their search. It is mandatory to share mortgage details applicable to all loans facilitated after March 31, 2011. The mortgage database is made public by CERSAI and one can verify the records of any property by visiting the CERSAI online portal. The SARFAESI Act was drafted with the purpose that no one can take multiple loans on the same property. In case of violations, buyers can file a complaint for breach of trust and also go to the court to defend their rights,” explains T Kalaiselvan, a senior advocate in Vellore.
How to handle the problem?
Serve a notice to the builder asking him to clear the bank’s dues. If that does not work, file a police complaint under Section 420 of the Indian Penal Code (IPC). You can also seek recovery of the amount paid to builder declaring that the sale deed signed with you was illegal.
“Section 55 of Transfer of Property Act lays down a mandate - The seller is bound— (a) to disclose to the buyer any material defect in the property 3 (or in the seller’s title thereto] of which the seller is, and the buyer is not aware, and which the buyer could not with ordinary care discover. As per this section, a builder is supposed to disclose any defect in the title of the property. You can file a criminal charge under section 420 of the IPC or you can approach the court and claim compensation. You can also go to RERA in case the project comes under its ambit,” suggests Pillai.
Sale deed
It is important not be in a hurry in signing any document with the builder. Experts suggest that it is important to read carefully and understand the sale deed and all the clauses given there.
“You must check whether the sale deed has all the details related to the mortgage. The document must make a detailed note of how the loan is to be settled. If such details are missing, you must get them included in the sale deed. It is not easy for a homebuyer to check all these details that is why legal experts need to be consulted,” says Aditya Parolia, advocate, Supreme Court.
The seller can use the sale proceeds to prepay the loan and the bank can release the property’s original papers. In fact, the homebuyer can also take over the loan. Since a home loan is not transferable, therefore, the homebuyer will have to submit his income and KYC documents.
Making full payment to the builder is not the only responsibility a homebuyer has, he must also check all the documents carefully and make sure they are not legally defected.
