A secured loan application is approved only after the completion of a legal and technical verification process of the property mortgaged by the borrower. We talk in detail about the impact of this procedure on the buyer’s secured loan application status and the approved loan amount.
Banks and financial institutions make use of a variety of risk assessment tools and procedures in order to determine the creditworthiness of a borrower. These measures are followed in a more stringent manner in case of secured loan applications wherein the ticket size of the mortgage is huge.
Besides assessing the individual creditworthiness of the borrower, the lending institution also assesses the true market value of the said property as it is the only security available to them in case the borrower commits a default in the repayment of the loan. Thus, to safeguard their risk involved in extending the loan, financial institutions perform a legal and technical verification of the property against which they give the loan.
However, when you apply for a loan with OneNDF, you do not have to worry about this aspect of your property. Our Loan Pundit will hand-hold you in ensuring all the documents are completed as per the Lending Institution’s requirement. The Legal search report / Valuation with no negative remarks is required to sanction the case and to ensure that there is no delay in the disbursement due to the Legal / Valuation of the property. We can also help you connect with professionals who can assist you in case of a road block. Additionally; we will also extend support for getting the documents from the required authority.
The legal verification process of the property to be mortgaged / mortgaged with the Bank / Financial Institution involves an examination and assessment of its legal status. For this, all banks, financial institutions, non-banking finance companies (NBFCs), and housing finance companies (HFCs) check the property legal documents by visiting the Sub Registrar office in order to ascertain its legal status. The experts thoroughly check all the documents related to the property including its title deed, ownership papers, and no-objection certificates (NOCs), if any.
The mortgage loan applicant is required to submit a copy of all the property-related documents at the time of their loan application submission and present the original copies of the same at the time of the visit by the experts. The date and time of the inspection visit is pre-informed to the loan applicant so that the buyer of the property gets the required time to arrange the necessary documents from the seller.
In case the loan is requested for an under-construction property of which the applicant would be the first legal owner, then the borrower must submit all the documents stating that the builder of the property had all the required permissions for the construction. Such documents include the agreement signed between the builder and the buyer, the construction commencement certificate, occupancy certificate, concerned authorities’ NOCs, encumbrance certificates, etc.
If the loan application is for a property bought from a secondary market, then the applicant is required to submit a string of documents relating to the previous ownership of the said property. For instance, if the mortgaged property has been owned by 5 different individuals before the applicant, then the borrower will have to arrange for the documents related to all the previous 5 owners from the seller.
The verification process is the simplest in cases where the borrower is the first owner of the property as then they only need to show their original property papers.
After the assessment of the property and its documents, the bank’s empanelled lawyer firm prepares a report on their stance on the legal status of the property and shares with the legal team who give their consent and raise their concerns if any. If the legal title is not clear the loan process gets stalled until required papers can be submitted and can also be subsequently rejected also,
This process is equally helpful for the buyer of the property as in case of a negative report, they get altered and thus saved from buying a legally disputed property.
Besides the legal verification, the lender also conducts a technical verification of the property for which the loan is sought. Under this verification process, a team of experts empanelled the bank visits the property to examine its physical condition, construction specifications, and the overall health of the property. They also assess its market value to help the bank make the right decision on the amount of loan.
The assessment of the market value is important for the bank also because it will have this asset to recover the loan amount in case of any repayment default by the borrower. Thus, if the bank is extending a loan of say Rs. 2 Crore (this amount is decided as per the LTV norm for the property type ofor each lending institution), it will require the property in question to be worth at least Rs. 2.5 Crore so that it does not suffer a loss in the case of a delinquency.
The true market value of the property is ascertained by the bank’s team basis the property location, physical condition, construction charges, quality of material used in construction, carpet area, and prevailing market rates. The team also checks if the construction of the property is in compliance with the property construction and safety norms or not.
For instance, two similar properties in Delhi and Ambala will have different market value despite being alike in their appearance due to the location-specific factors. The value of the Delhi property will be more than that of the Ambala property as it would have incurred higher labour charges for being located in a metropolitan city.
Based on all the information collected during the verification process, the bank’s team prepares a report mentioning the ascertained value of the property. As a thumb rule, banks extend a loan of 80% of the assessed value, thus, if your property has been valued at Rs. 3 Crore, you can expect to get a loan of Rs. 2.4 Crore from your lending institution. This amount varies and depends upon the product, the Financial institution and the financial standing of the firm and individual
Banks and financial institutions usually hire third-party contractors to carry out the legal and technical verification of the property. The cost of this outsourced service is passed on to the loan applicant in the form of legal and technical verification fee or is included in the loan application processing fee.
These charges generally range between Rs. 5,000 – Rs. 10,000, however, may vary depending on the financial institution to which you have applied for the home loan.
Financial institutions, especially housing finance companies often tie up with different builders launching new housing projects after examining all the legal and technical aspects of the property. Thus, the buyers of such under-construction properties, experience a shorter loan application processing time as the legal and verification process had been already performed by the lending institution. In such cases, the banks only assess the personal credit worthiness of the borrower for granting the loan. In case, your bank has no tie-up with any developer, it will have a list of pre-approved housing projects. Thus, if you select a property from this list, you will be able to skip the legal verification process and get your loan amount in a shorter span of time.
It is a procedure under which the lending institution sends a team of experts to the property for which the loan is requested. During the visit, the bank’s team examines the property’s physical conditions and its market value based on a number of factors such as its location, carpet area, compliance with construction laws, etc.
The fee charged for the legal and technical verification varies from lender to lender, however, it generally ranges between Rs. 5,000 - Rs. 10,000. This varies and depends on type of property, area of property. For example the cost of technical verification for a property located in a remote location in UP will be more than that of a property located in Ghaziabad.
Banks and financial institutions usually have a Loan-to-Value (LTV) ratio of up to 80% which means that they grant a loan amount equivalent to maximum 80% of the property value ascertained by them. This amount varies and depends upon the product, the Financial institution and the financial standing of the firm and individual
The legal chain starts from sale deed of land between the Urban development Authority. Then the Government approved plans of construction of the property (drawn by the architect). If the property been sold to different buyers then all the sale deeds are required and in case anyone is deceased then the registered will and relinquishments deed / Survival member Certificate or Succession Certificate or Legal Heir Certificate is required; it may vary as per the State protocol. of the heirs is required, apart from this all property tax payment receipts, if any unauthorised construction has been done then approval document for the same.
By ensuring each document of the property, from the initial land acquisition paper to the sale deed, Power of attorney documents of each and every past owner of the property is in place. In case of death of any owner the registered will is present in which ownership of the property is mentioned clearly and in case any heir has forfeited his/her claim then the relinquishment deeds are also registered and available. Apart from this all clearances from civic authorities such as MCD/ HUDA etc should be in place apart from the property map (again approved by the authority). The buyer should also ensure all the previous property taxes have been paid and there are no arrears ,the land is not subject to any reservation and is marketable.
If there is a discrepancy in any property document or if any document is missing then the copy of the document has to be retrieved from the local registrar’s office. This must be approved by the banks empanelled lawyer and subsequently legal team. In case the report is not approved then the loan process is stalled and can be rejected. In such situations, our team at NDF can help the client clear the Title deeds’ wherever possible. The client does not have to worry about retrieving the documents; we will assist completely in clearing the title deed of the property.
The technical report runs into a problem when there is unauthorised construction for which approval has not been sought and no civic authority approval has been taken. Or if the land is not marketable and falls in a no construction zone, example being agricultural area, Lal Dora land.
The Legal and technical valuation report usually takes about a week’s time and depends entirely on the location of the property, the availability of the property papers and owners availability for easy and fast inspection