Encumbrance Certificate: Flaws and Limitations

Property Tips for Property BuyingAfter months of research Vishal Das, a Bangalore based brand consultant, invested in a posh 3 BHK flat in an upscale locality. He bought it from an NRI who dutifully transferred all the necessary documents in Vishal’s name. An Encumbrance Certificate (EC) was also issued for a specific period. But little did both seller and buyer notice that the print out of the EC, given by the Sub Registrar’s office, had a major error – The flat number was fed wrongly. It only came to light when Vishal planned to sell the flat to a prospective buyer, who pointed out the error. Such errors can be rectified by going to the Sub registrar’s office and asking the officials to make the necessary changes and can be a time consuming process. This is one scenario where simple human errors can make property selling or buying very cumbersome.

In our earlier articles, we have discussed all about the Encumbrance Certificate (EC) and its importance. Essentially, an EC lists all types of registered financial transactions made on the property or using the property as security, which might give a third party (other than the buyer and the seller) a claim on it. This means, an EC is proof that the concerned property is free from any legal or financial liabilities for the period for which the EC is taken. Besides showing liabilities on the property, the EC is also necessary for applying for home loans or loans against the property. Most government authorities and financial institutions ask for an EC for the past 13 years. One can also get an EC for longer periods just to be extra sure. However, an EC comes with its own set of limitations. A prospective property buyer needs to be aware of these too. In this article, we will have a look at the various limitations of an EC.

Be vigilant while procuring your EC

Since 2004 onwards, Sub Registrar offices maintain both manual as well as online records of the EC. One can get a printed as well as a manual copy of the EC from the Sub Registrar’s office under whose jurisdiction the concerned property comes. In some cases, the jurisdiction of the property may have changed over time and procuring the EC involves more than one Sub Registrar’s office

The encumbrance certificate records before 2004 are still maintained offline and are checked manually. While one can get the EC easily from the Sub-Registrar’s office, one needs to be extra careful when dealing with records from before 2004 as a clerical error can result in wrong information reflecting in their EC.

Tip :- As stated above, one can end up with a faulty EC be it manual copy or printed version just because of a small human error, so better be safe than sorry. One should see to it that the information fed about the property in the EC as well as the schedule page of the sale deed should match perfectly.

How a faulty EC affect can buyers
In case of a faulty EC, they buyer has to deal with both legal and financial hassles.

Wrong information about the concerned property on the EC might lead to certain transactions not reflecting on the EC. The property might have various financial issues such as leases and loans against the property which may not reflect on the EC and will have to be resolved by the buyer later.

Owners of the property should also ensure that their EC is free from any kind of error, as selling a property on the basis of a faulty EC can result in legal action from the buyer once these flaws are revealed.

Tip :- Getting a thorough background check on the property one plans to buy is the best way to know if there is any encumbrance on the concerned property.

No loans from banks if your property has an encumbrance
No financial institution gives loans on a property which has an Encumbrance. Also, a prospective buyer will generally not buy a property which has an encumbrance attached to it.

Tip :- Banks do a background check on the property before issuing home loan. But a prospective buyer should also do a thorough legal check on the property before going ahead with an investment.

EC only reflects registered financial transactions on a property
Even if one has a clear Non-Encumbrance for a property, one should note that the EC does not cover all transactions on a property. An EC will not cover details of equitable mortgages on the property; nor does it record testamentary documents or leases for a period of less than one year. Also, an EC will not record oral arrangements such as tenancy, tax liabilities and unregistered wills or family arrangements.

Tip :- When buying a property a buyer should always put a newspaper advertisement stating his intention of buying the said property and call for any disputes regarding the same, so that the courts do not entertain any later claims.

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