Be careful while transacting with a bank or any Financial Institution in purchasing an Mortgaged/Encumbered property.
By Prakkash Rohira
Always remember to differentiate between what’s told to you orally and what’s identified in writing, and that writing must be from a reliable source as well.
Following is an encounter of a situation wherein several homebuyers were incited, offered properties at reduced prices, asking intended purchasers to forward such letters, without fully explaining to the homebuyers the consequences and the title of the property.
A homebuyer buying property through bank loans or mortgages, does happen to get a good deal, but in some cases comes with riders. There are several judgements and orders with regards to bank auction and sales, for which reasons it’s always recommended to consult a legal professional before entering into the same.
Before going forward, ALWAYS remember that it is wholly untrue that if the bank has granted a loan on a property, the title must be clear. Banks always take personal guarantees and assurances from borrowers to secure themselves in case they have a defect in the title or may need to exercise any other route to recover their money lent to the borrower.
However, such sale of the bank through a sale certificate can be questioned and challenged. However, one must understand that banks are not concerned with your title and transfer you property on an “As is Where is Basis”.
Such draft as shared here, was recently shared by a lending institution marketing the encumbered property, offering properties in a posh suburb at near 40% its clear title value, exciting the homebuyer, asking them to express their intent to purchase a property in a nearing completion building in Western Suburbs only in this format, which was to be given along with Earnest Money to the financial institution.
With such a letter, the bank or Financial institution would transact with the homebuyer in a manner to relieve itself from the defaulting borrower, however leaving the homebuyer subject to claims and litigation from other individuals.
In this letter it was evident that:
1. Though the homebuyer was informed that he was being a part of an auction, but on paper what he was depositing money with the bank was for a “Private Treaty Sale”.
2. The format referred to several “banks” having issued sarfaesi notice, making the homebuyer admit to the knowledge of more than one bank having issued notice.
3. The advanced monies would be held in an interest free account if and until the sale is completed.
4. There is no surety or binding from the bank, hence the homebuyer was made to prepare such a letter.
5. No assurance of refund in case sale does not complete, rather a line to refund “that part” of amount if the homebuyer is not the “highest bidder” that too in a private treaty sale.
6. Banks’ possession was symbolic, did not have physical Possession to hand along with the flat.
However, if things didn’t go your way, the bank would be off with its dues, unable to recover from the borrower, leaving the homebuyer parted with their hard earned money, and without the actual property in hand.
All such information remained concealed from the Homebuyer as more than the Financial institution, it was the homebuyer convincing himself to the oral arrusances of the Financial institution, as they remain attracted to the price. The letter consists of only smartly worded concealed terms implying the buyer having knowledge of the same, however refusing to actually divulge it to the buyer, and oral comfort was given to the buyer that the said flat shall be given to them at such amazingly reduced rate.
Surprisingly it was later learnt:
1. Of the said flats mortgaged, most of the flats were allotted to third parties and there were pending RERA complaints.
2. The Landowner Society had terminated the Developers Agreement recently.
Always remember that a homebuyer is still required to do his due diligence before purchasing a property. A property being mortgaged with a bank or NBFC does not mean that the title is clear.
1. Investigate the title and possession properly before participating in an auction / Private Sale with the bank.2. No one can “do setting” and make you win the auction of the flat.3. check for pending litigation.
4. Check for sanction plans, occupancy certificate of the project.5. Understand Society or condominium related issues with the property.
Prakkash Rohirai Advcoate, Bombay High Court, the views expressed in this article solely belong to him.
Take note this article is not intended to question the title or denigrate any bank, project or developer, but is in good faith to only generate homebuyer awareness.