Here's Why Encumbrance Certificate & Transfer Memorandum Are Important
Buying a home is one of the biggest investments you will probably ever make. Even if you sacrifice your other needs, pool your lifetime savings and sign the home loan agreement, this does not mean that your dream will become a reality. The property must be free of legal hassles too.
As a home loan borrower, you must know that if any legal dispute emerges in the future, the lender will not take responsibility for it. The lender is more concerned about gauging your ability to repay the loan.
The property belongs to you. As a homebuyer, it is your responsibility to make sure that you do not get entangled in legal disputes.
As this requires specialised knowledge, it is good to seek legal advice in this matter.
MakaanIQ tells you why encumbrance certificate and transfer memorandum are important while buying property.
The relevance of encumbrance certificate
The encumbrance certificate (EC) is one of the most important documents involved in the process of buying a property. What does the EC do? The EC certifies that there are no dues on the property, and that the title is clear and marketable. It can be obtained from the sub-registrar's office where the sale deed is registered.
The Encumbrance is a charge/ liability/ lien created on the property, which is held as a security (or collateral) against the debt that has not been paid off or cleared yet. An EC contains the records of the past 13 to 30 years.
The EC is generally filed at the beginning of the financial year, when the builder gets the commencement certificate.
Lenders always insist on the latest EC from the home loan applicant, because it attests that the property is not already mortgaged, and is free from dues.
The EC is issued in two forms: Form 15 and Form 16.
The Form 15 will contain details of transactions like sale, gift, lease, mortgage, inheritance, partition etc. for a certain period in which the EC is released.
The Form 16, also known as the 'No Encumbrance Certificate', is issued when there is no transaction recorded during the period in which an EC is issued. This simply means that the current owner has been holding the property for the past 13 years and that no transaction was registered during this period. In other words, this means that during this period, the property was not mortgaged and had not changed hands.
Also, you must know that if you sell the property in the future, the new buyer will demand the EC. Regardless of whether you buy or sell the property, the other party will ask for the EC.
The relevance of transfer memorandum
The Transfer Memorandum (TM) is important in transactions related to leasehold properties. The TM is an official permission granted by the local development authority to the owner of the property, transferring his right of ownership.
Why is this necessary?
This is because there is the land, and there is the asset built on the land. In Indian states, development authorities provide the land development rights i.e. the permission to construct properties to developers. When you purchase a leasehold property, however, you will have to get the property registered in your name. This is to establish your interest/ownership in the property.
The TM is issued during sale/transfer of a leasehold property. The seller of the property has to file an application to the revenue officer in the development authority office for the permission to transfer/sell the property. A copy of the NOC along with the title deed should also be submitted with the TM.