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Housing loan: About chain agreements and registration

Saturday, March 31, 2018

For home loan disbursement, the borrower is required to submit the copy of agreement and various other relevant documents. Among the required documents, the most troublesome documents are the chain agreements of the property. Advocate Tanmay Ketkar does a detailed scan

With the rising prices of property, housing loan is imperative for buyers. The profitability in housing loan business has attracted many banks and non-banking financial institutions to venture in the business. However, the profit or profitability of the business depends solely on repayment of loan amount. The cases of default in repayment lead to the burden of NPAs, which none of the institutions desire.

Therefore, to guarantee the repayment the lending is guided by two criteria’s, firstly the financial standing or capacity of the borrower and secondly the legality of the property for buying which the loan had been applied for. The financial capacity is decisive for quantum of loan amount to be sanctioned. In cases of default, the financing institutions try to recover the money by auctioning the property. That’s the reason the financing institutions study the legality and ascertain true market value of the property. the financial capacity of the borrower, and the legality and value of property, together decide the quantum of loan to be sanctioned or advanced.

Sanction and disbursement
Sanction and disbursement are two totally independent things. Even if the loan is sanctioned, the loan amount is not disbursed, or paid, unless and until all compliances are made. For disbursement of loan, the borrower is required to submit the copy of agreement and various other relevant documents. Among the required documents, the most troublesome documents are the chain agreements of the property. A property can be sold or purchased for several times and there is a separate agreement recording every such transaction. If the property in question, is transacted many times in past, the borrower is required to submit original copies of all the agreements till date. More the transactions, more the trouble in getting all chain agreements. If the property is very old or there have been too many transactions, it may not be possible to have original copies of all those agreements. In such circumstance, as a last resort, loan amount is disbursed, after publishing the public notice and filing the police complaint about the missing agreements.

The question is why the institutions demand all original chain agreements? The demand is founded on misconception that without the all original chain agreements the agreement transferring the property cannot be registered and thereby to the property cannot be transferred. However, in our current registration process, none of the original chain agreements are required to register the agreement. Putting these two things together we must conclude that, demanding all original chain agreements from borrower cannot prevent further transfer of property or registration of agreement transferring the property.

It is settled law that for an agreement to be valid and legal it must be registered. However, it is not the other way around. Every registered agreement cannot be presumed to be legal. Mere registration of agreement otherwise illegal or invalid, will not make it legal or valid. Currently, our registration system does not have any check or preventive mechanism to prevent registration of invalid or illegal agreements.

Importance of documents
From seller’s perspective, giving the original agreement to the purchaser or to the financing institution can create some problem for purchaser. Revenue generated from selling of property may attract capital gain and other taxes. If there is inquiry or dispute regarding the capital gain or other taxes, unavailability of agreement would be troublesome. To avoid such problems, it is better to have at least one certified copy of the agreement.

Sanctioning and disbursement of housing loan is important for both the seller and purchaser. Any technical or other difficulty may delay the disbursement of loan, which in turn create trouble or dispute. To avoid such problems, if the transaction involves loan, it is better to have information about the documents, formalities and compliances required for sanctioning and disbursement of loan.Timely sanctioning and disbursement makes facility of housing loan a blessing, which otherwise would be a nightmare.

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