Thomas Roy (name changed on request) wants to sell his exiting 2-BHK apartment in the city centre and move to the outskirts where he has booked a 4-BHK home in a gated community. However, he has an outstanding home loan on his current property and is now wondering how to go about the process. If you too are planning to sell your home which has an outstanding home loan, here’s how you can do it.
The very first thing you need to do is to get a NOC from the lender or an in-principle approval from the lender for such a sale transaction.
Thereafter, you need to ascertain whether the property is freehold – owner absolute ownership, and clear title of the building as well as the land on which the building is constructed –or leasehold – The buyer is not the owner of the property or the land it is situated upon. “In case of a freehold property, the seller needs to pay the outstanding loan amount to the existing lender and withdraw property registration papers along with the No Dues Certificate. You can either pay the outstanding amount or request the lender to transfer the same in the name of a new owner who will enter into an agreement with the bank by submitting his KYC and other documents,” says Adhil Shetty, CEO, BankBazaar.
In case the buyer wishes to avail a home loan from the seller’s lender, he would have to first apply for a home loan with that lender. “Once the home loan is sanctioned, the lender will adjust the buyer’s outstanding loan amount with the proceeds of the new loan and then take necessary steps to issue a No Dues Certificate to the seller. However, the property documents will continue to remain with the lender,” says Ratan Chaudhary, head of home loan, Paisabazaar.
“Once the loan amount is taken care of, the buyer can pay the outstanding amount to the seller and execute and register the sale deed in the office of sub-registrar of a particular district,” adds Shetty.
In the case of a leasehold property, while mostly the process is the same as above, except that the seller has to obtain a NOC either from the builder or resident welfare association or whoever manages the society after clearing all the outstanding society dues. After the NOC is received, the seller can apply for ‘permission to mortgage’ and ‘transfer of memorandum’. These two documents are nothing but approvals from the government or development authority to seek permission to sell and register the property in the name of a new buyer. “Once all the approvals and NOCs from the builder, RWA and government authorities are obtained, the seller can go to the bank and clear his outstanding loan amount or request the bank to transfer the same in the name of a new buyer. After this, the seller can take the remaining amount from the buyer and execute or register the sale deed to transfer the ownership title in the name of the buyer,” adds Shetty.
However, if the buyer wishes to avail a home loan from a different lender, “then the buyer’s lender will issue a cheque to the seller’s lender bearing the outstanding loan amount. Once the cheque is realised, the seller’s lender will start the process of closing the loan account and issuing necessary certificates to the seller. Also, in many cases, the buyer’s lender may ask the seller to become a guarantor to the new home loan and remain so till the registration of the property is completed in the name of the buyer,” adds Chaudhary.
According to experts, the role of a lender is important as the lender has to provide you with relevant documents so that you can complete the sale of your property. Property verification, documents and checking the new owner’s eligibility to transfer the loan amount in his name should take place smoothly and the lender has to help you in this process.
Due diligence is a must
The seller on his part must ascertain the true identity of the buyer by checking his Aadhaar card, PAN card and his employment details. “It is important to find out whether the buyer is in a capacity to make the full payment. Asking questions is advisable whenever in doubt. Since the buyer may assume the loan balance, they should be eligible for the loan. The seller can assess the buyer’s creditworthiness through a credit report. The seller also needs to go through the terms and conditions of the agreements and get anything added or deleted as per the rules. One should not take a standard format of an agreement and sign it without reading the same. You should always modify it as per your requirements,” mentions Shetty.
As a buyer interested in buying a home, which has a home loan on it, first, check if the property is in the name of the person claiming to be the seller. “Examine the property tax receipts, original title documents, encumbrance certificate, etc. The buyer should also get a list of property-related documents from the seller’s lender and get them verified by his lawyer. Also, try and do a litigation search on the property before going ahead with the purchase transaction and get due diligence done by the lawyer. Borrowers must also check whether the seller is an NRI as the buyer in such cases would be liable for depositing capital gains tax. He should consult his tax advisor regarding the same,” says Chaudhary.
Essential documents
While selling your property, you must always keep the following documents handy:
- Sale deed of the property;
- Documents obtained during home loan sanctioning;
- Society NOC (in case the property has been bought in a registered or cooperative society);
- Encumbrance Certificate;
- NOC from lender/bank.
- Atul Monga, CEO and co-founder, Basic Home Loan
Did you know?
The income tax deductions availed by the home loan borrower will be added back to the income of the borrower and will be liable to taxation if he sells his property within five years of purchasing.
“If the buyer is buying the house from his savings and does not wish to opt for a home loan. Then the seller can request the bank to provide a loan outstanding letter. The buyer may then choose to pay the amount in cash/cheque to the seller directly, who can then pay the amount to the lender to clear the outstanding liability. Once the loan is cleared, the bank must hand over the property papers and thereafter the seller can transfer the property in the name of the buyer.”
- Amit Goenka, MD and CEO, Nisus Finance
Source - Times Property