How to check documents before property purchase

In all property transactions, it is essential to subject all related documents to rigorous scrutiny and verification by a qualified expert in order to ensure that the property has a clear and marketable title, says Kishor Pate, CMD, Amit Enterprises Housing Ltd.

For the purchase or lease of real estate for self-occupation as a home or commercial premises, or as an investment, various factors need to be considered beyond the price and location. 

In the case of properties in new projects by reputed developers, there is no reason to be too stressed about this. However, it can and often does become necessary while purchasing a resale property. One of the most important aspects to verify is the title of such property.

The title verification process should actually begin even before an actual check of documents. For instance, if a person or entity offers a property at a rate which is below the going market value, it is definitely a signal for caution. Owners of property with complicated or defective titles will attempt to pressurize interested parties to buy the asset at short notice by offering a very low price as enticement.

In all property transactions, it is essential to subject all related documents to rigorous scrutiny and verification by a qualified expert in order to ensure that the property has a clear and marketable title. To begin with, a prospective investor needs to establish whether the property on offer is leasehold or freehold, and whether it is fully or jointly owned. Next, the documents creating interest in the property – namely the title papers – must be reviewed.

Depending on the nature of the property or proposed transaction, these include the sale deed, lease deed, conveyance, development agreement and the documents establishing the chronological chain or ownership. The primary intention behind this search is to establish how the owner acquired the property and what kind of rights he or she has over it.

Other documents to be checked are the property card (if available), the 7/12 extract and the Index II. Further, a prospective investor needs to establish whether all the above documents are properly registered in government records, along with any encumbrances such as mortgage or pending litigation.

How A Title Search Is Conducted

An advocate issues a Title Certificate after conducting a search on the title of the property that is intended for purchase. This search will encompass the chain of sale/conveyance agreement, property card, 7/12 extract, Index II and records in the sub registrar’s office. The title certificate states that the property is unencumbered and has a clear, marketable title.

Also to be included in a thorough title search are aspects indicating ‘right of adverse possession’, which means that any person physically holding the property without dispute from the true owner can claim the right of ownership. All this considered, it is advisable to conduct a 30-year title search, or at least a 12-year search.

Public Notice

Though it is not mandatory, there are sometimes reasons for doubt about a resale property or a piece of land with a long history of ownership. In such cases, the intending purchaser or his advocate often issues public notices in newspaper. The practice is to issue two public notices – one in English and the other in the local language of the state – stating that the purchaser or his client has agreed to purchase or negotiate for the purchase of a property from a named vendor. This invites counter-claims in the form of mortgage, charge, lease, lien, easement, gift, trust, etc. against the property to be notified to the buyer or his advocate within a specified time (normally 14 days) with supporting documents.

However, it must be noted that merely giving public notice and not receiving claims from any persons will not bind those who may be real claimant if they were not aware of the public notice. In case of dispute, such public notice will support the buyer’s contention that he is a bona fide purchaser for value without notice of such claim.

Check list of documents to buy a home

Buying a property is perhaps the single biggest investment made by a person during his lifetime. Thus one needs to exert due caution in buying a house, lest one's precious savings goes down the drain.

After zeroing in on the desired property, one still would have to wade through a formidable maze of tedious legalities and endless paperwork. So in order to cruise home in style, one ought to acquaint oneself with various legal jargons and other technicalities.

The Title Deed: The Title Card is an investigation into the title of the land over a period of 30 years and states whether the property is unencumbered and has a clear and marketable title. The detailed report should be prepared for the seller by his lawyer and should be checked by the purchaser's lawyer. If the title were not clear and marketable, most of the major financial institutions would refuse to finance this property. Hence one could approach a financial institution to check if they would provide a loan for that particular property.
One should also check whether the owner has valid Patta, Chitta from the local authority.

One should also insist for encumbrance certificate (EC) for 30 years to ensure that there is no liabilities on the said property.

Property Under Construction: For a project under construction, one should ask for the Allotment Letter and Development Agreement. The Allotment Letter contains details regarding the agreed price, payment and construction schedule, house plans, delivery date and builder's liability in case of late completion or problems after possession. It is issued to the buyer upon payment of the 15% of the property value to the developer. The Development Agreement is inked between the builder and the landowner and contains details regarding the terms and conditions on which the landowner has permitted development of his property.

Constructed Property: In case of constructed properties, one should ensure that the seller has the title and possession of the property as well as the right to transfer the property. Check if the building adheres to relevant municipal/planning authority requirements. Ensure that there are no tenants and get a declaration that the property was purchased from the seller's funds and is not mortgaged. Check whether dues such as property tax, society, water and electricity bills, etc. have been paid in full. Make sure to take possession of all relevant documents and also the original allotment letter, completion certificate, occupation certificate and all other documents given by the original builder.

Stamp Duty and Sale Deed: The stamp duty is usually a percentage of the transaction value levied by the state government on every registered sale. The agreement to sell clearly states the stamp duty, which is usually paid by the buyer, and he gets his name registered in the land revenue records. The final Sale Deed should be stamped and registered at the appropriate local area office. Both, the developer/seller and the purchaser need to be present at the sub-registrars office for registering the agreement.

Above all, one should submit these documents to the expert lawyer to find the veracity of the documents procured.