Why You Must Obtain A Non-Encumbrance Certificate?

If you are someone who has invested in real estate, non-encumbrance certificate is a term you must have come across. Even for those who have not made their investment, it is always good to know the importance of various documents so that you do not leave out on any of them, as they are legally required documents.

An encumbrance is a charge created on any asset. In real estate terms, when a property is bought on loan or borrowed funds, a charge is created on that property by the lender of loan /funds for the property as a security for the funds lent. The property also remains mortgaged with the lender till the duration of the loan.

Rajesh Patil from Belgaum emailed us about his situation. He had purchased an independent house last year in a prime locality. A few days after he moved into the house, he started getting calls from the earlier owner bank regarding payment of the loan. He could not figure out the reason for the same.

While he was particular about all other documents, he did not bother about getting a No-Encumbrance certificate as he had paid for the house out of his own funds. He then realised the earlier owner had sold him the property without clearing off his home loan.

Why Is It Important For You To Obtain A No-Encumbrance Certificate?

When buying any property one has to make sure that it is free of all charges. In other words, if a loan has been obtained to buy that property, the same is cleared by the existing owner before he sells the property to another person.

When you go in for a loan for any property, lenders usually demand this document to make sure that there is no existing loan /charge on the property. Only then do they agree to lend for buying the property, subject to fulfilment of all other conditions.

In the case of Rajesh, did you notice that he bought the house out of his own funds and hence he did not think that obtaining a No-Encumbrance Certificate was necessary?

In case there is a charge on the property and the transaction is made without insisting on the No-Encumbrance certificate, it is possible that the liability will devolve upon the buyer of the property.

How do you obtain a No-Encumbrance Certificate?

A No-Encumbrance certificate can be obtained from the Sub-Registrar’s office having jurisdiction over your area. To do so , you would need to follow a simple process as mentioned below

• Submit an application on Form 22 with details of the property and purpose of the certificate
• Attach your Identity and address proof
• Mention clear details of the property with Survey Number, Description of the Property and co-located properties.
• Mention the period for which the certificate is required. It is always issued for a period of 1 year that corresponds to the Financial Year (Apr-Mar). So if you require a certificate for a period of 6 months between June -December, you would get a certificate for that Financial Year.
• Year-wise required Fee for the certificate needs to be paid with the application
• After a period of 15-30 days, the office may issue you a certificate in Form 15 if there are charges registered against the property and Form 16 if there are no charges on the property. The certificate will have details about nature of charges created, date of creation, the amount for which the charge is created, documents registered against the property, etc.