If you do not conduct due diligence, you could end up losing the property and face a financial disaster
Buying
your own home may be a cherished dream, but it doesn’t take much for it
to turn into a nightmare. Given that real estate is among our most
expensive purchases, landing a lemon can prove to be a financial
disaster. The only way to avoid such a situation is to take time out to
conduct due diligence before finalising any property deal. Of course, a
reliable shortcut is to buy into a project that is backed by financial
intermediaries like banks. “Seldom would they hand out loans to projects
where due diligence throws up pending mandatory clearances,” explains
Shveta Jain, executive director, residential services, Cushman &
Wakefield, India.
You can also engage a lawyer to carry out due
diligence, but as a smart buyer, it’s best to pore through the documents
yourself. Here is a checklist of documents that you should peruse
before signing on the dotted line.
Projects under construction
The
first thing one should do in the case of projects that are still under
construction is to make sure that the builder has all the necessary
approvals in place, without which it
would be considered illegal. “We have often come across cases where
projects have been stalled midway due to lack of proper approvals. Even
finished projects have been razed for the same reason. Hence, I would
never advise to go for a booking unless you have taken a close look at
the key documents,” says Ramesh Vaidyanathan, partner, Advaya Legal, a
Mumbai-based commercial law firm.
The first of these is the permission to develop
land into a residential complex. Builders need to get government
approval to convert agricultural land or even land specially designated
for industrial purposes into a residential area. If the builder has gone
ahead without securing this approval, the entire project is illegal. In
addition, there are environmental and municipal clearances to factor
in. For instance, the builder has to ensure that his project does not
interfere with the urban and town planning, and that it has unrestricted
road access.
Next, you need to find out if the builder has the
authority to transfer the undivided share of land to each flat owner and
the entire plot to the society, on completion of the project. A Knight
Frank research report on ‘Parameters for Buying a Home’ mentions that
you should also ensure the builder does not reserve any right on your
portion of the apartment, such as balconies or terraces.
Lastly, never forget that there’s many a slip between the blueprint and the final product. The developers tend to charge a
premium for additional features, such as
a swimming pool or designer furniture.
However, unless you ask the builder to incorporate all the promised
features in the agreement and make provisions for penalty in case of
non-fulfilment,
you stand on shaky ground. Any sample flat that was shown to you would
be demolished long before you obtain the possession of your house,
leaving you with little evidence if you decide to drag the developer to
court. Also, watch out for the fine print: builders may slip in a clause
in the agreement, stating that they reserve the right to alter any of
the promised features. To be safe, take a look at the approved
construction plans and ensure if they match what has been promised to
you. Ask the builder to show you the requisite permits from the
concerned authorities. While the approved construction plans have to be
mandatorily displayed at the construction site at all times, all the
important approvals should be available at the builder’s office. Under
the Transfer of Property Act and Maharashtra Ownership Flats Act, a
seller is required to disclose all facts relating to the property, which
includes the various permissions secured by him. In case a builder
refuses to do so, a prospective buyer has recourse under the same Acts.
“However, if any of these documents is missing or the builder refuses to
show them to you, it is best to stay away from
the project,” warns Vaidyanathan. In addition to these documents, you
should also take a look at the Commencement Certificate for projects in
Mumbai. As the name suggests, this certificate is given to the builder
to begin construction only after he has obtained all the requisite
clearances.
Independent home owner
“As a primary rule,
check and verify if the seller owns the property and has a right to
dispose it of,” says Jain. In case he is a joint owner, he cannot sell
the property without the consent of the other owner(s).
One way
to be sure of ownership is to go through the house agreement. If you are
purchasing a flat in a housing society, ask for the original share
certificates. To double check, you can peruse the telephone and
electricity bills as they are always issued in the name of the legal
owner. Alternatively, you can check the housing society maintenance
bill, which contains the owner’s name and property tax details. This
will also highlight any pending charges that are due for the flat you
want to buy. This is crucial because if the owner sells a flat without
paying his dues, the society may recover
it from the new owner. To avoid such hassles, ask the society to issue a
no-due certificate as well as a no-objection certificate. Though this
is not mandatory, you should insist on it, advises Vaidyanathan.
Any pending litigation on the
property
should also be a signal to hightail it. This is because you are bound
by the result of the suit, and if the court establishes that the seller
was not the rightful owner, you will have to hand over the property to
the winning litigant. To check for pending litigation, go through the
lis pendens registry at the sub-registrar’s office, as it will contain
the owner’s name if there is pending suit.
Mortgaged properties
are the other lemons you need to watch out for. In such cases, the
original documents are sure to be with the lending institution. So, if
the seller fails to show you the originals, it’s reason enough to be on
an alert. If the seller claims he has cleared all debts, ask him to show
you the bank’s original discharge letter.
Some experts are of
the view that a clear title is not assurance enough and one should
consider contacting past owners to rule out fraud. As a safety measure,
publish an advertisement in the newspaper stating that you wish to buy
the property and inviting objections.
After the deal...
1 After the agreement is drawn, have it whetted by a lawyer to spot loopholes.
2 Do not delay registration of the sale deed after signing it.
3 Ask for the issuance of share certificates after a society is formed.
4 If
you are paying an advance without getting possession, document it in
the form of an agreement or a memorandum of understanding.
5 Contact a tax consultant to explain your tax liabilities to you.
Source: the times of india, Sakina babvani, 03/12/2012
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