5 myths about legal title one should avoid

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1) Bank approved projects are clear of any violation. It is a fail safe warranty!

It is indeed good if you are going with a bank approved project which means the bank is approving home loans for the project which definitely makes life easy if you are looking to part fund your buy. What it means is that the bank’s legal team has
a) vetted the title documents of the land on which the project is coming up,
b) checked if the project has all the necessary approvals

However, there are 2 issues with this. First one, the bank has checked the legal aspects at the time of project commencement and not during or after a project is completed. The bank is not bothered if your sale agreement does not state that you will get an OC (occupancy certificate) on completion of the project. The bank is not bothered if there is any violation during the time of construction which makes you ineligible for the A-Khata. In such cases, a land which had a perfect A-Khata has now turned into a building which is not eligible for the same. Hence, all that people can get once they move in is a B-Khata which means the property has violations.

Second, the bank is also not going to intervene if due to any reason the project stalls and is not completed. The bank funds you purely on your ability to repay the loan and if you look at the fine print it will clearly state that you are liable to pay, no matter what.

This doesn’t mean bank verification is inadequate. It just means that your liability will always remain yours and hence it is a good idea to do an independent verification with a competent lawyer before you decide on a property. This is required to ensure that your agreements are balanced and not one sided (in favour of the builder).

2) Builder’s legal opinion is sufficient proof of title? Why do I need an independent legal opinion?

This is the biggest myth floating in the market where even educated professionals think and trust that a legal opinion from the builder you are purchasing from, is good enough to make your lifetime investment. No matter how trustworthy the builder is, it is always a good idea to get a third party unbiased opinion to know the pros and cons. Any builder whose prime interest is to make a sale of his property is not expected to disclose all facts to you. Some of these facts could have a huge material impact on your later. Or perhaps if you had known them at the time of purchase, you would perhaps desist from going ahead with the project itself.

So never ever base your decision on a builder’s legal opinion.

3) The project is from a reputed builder, so why worry?

A builder with a good reputation is a good starting point to zero down on your choices. If you had to choose between a builder who has a good reputation in the market versus one who is not having it, it is a very simple choice. But the problem comes with the fact that even reputed builders sometimes run into problems with approvals for a project (which they were anticipating to get approved) or with the legal title of a parcel of land within a single project. The land purchased by the builder may be from a single parcel of multiples and the seller may also be one or more. So ensuring that legal title is clean in all aspects is very critical when making any real estate decision.

Do not go by hearsay, do not go by reputation. Check the title thoroughly and then reputation of the builder can become the consolidating factor for taking a decision.

4) My friends & people I know have bought it. So I needn’t do my own due diligence.

Well, friends and people you know are good benchmarks to guide you through property decisions. It does help to have friends and people you know as neighbours. But remember that you are the owner of your property, just as they are owners of theirs. Within a single project, the title and its historical antecedents can change dramatically if it’s a large parcel of land. Similarly, the approvals could be different as well. Most apartment complexes have penthouses that are sold at a premium but are not approved. If your friend has bought it on the 5th floor and you are buying it as penthouse on the 12th floor, then there is big difference.

Doing your own due diligence is absolutely important since you are buying the property with your own money. Going with a herd mentality can cause serious damage to your lifetime investment if you happen to make the wrong choices.

5) It is 10 year old property and people have lived here for long. So it should be legal.

Unfortunately, this is a common myth that can turn out pretty bad for people who are buying property on resale without proper due diligence. In India, people living there for a long time is no guarantee that the property is legal and has no issues. Cases like the Campa Cola Society in Mumbai, the recent evacuation of people from lake beds in Bangalore that were encroached decades back is a clear pointer to the fact that if your property does not have clean titles and approvals, it always runs the risk of demolition or at the least, penalties. Even if regularisation comes, it will be only applicable only for old properties and those with violations within the limit. Add an uncertain penalty to your total cost of acquisition of a property and you will understand why it makes sense to buy a property that has adhered to all the guidelines.

In fact, many take a risk knowingly of purchasing a B-khata property on the ruse that 90% of Bangalore has violation. Of that 90% if only 60% will get away with penalties (which are bound to increase with time) and the rest risk demolition, would you want to be there? Taking a guess on what is the extent of violation and how it will be perceived under law at a later point of time (next 10 years/20 years) is actually worthy of a punter’s bet. It is difficult to fathom how perfectly sane and rational people take such risky bets on something as precious as your home.

People living there peacefully for a long time is no guarantee of clean title. Do your diligence before you buy.

      
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