Once the property has been identified, and a price agreed with the seller, the buyer’s lawyer will conduct a ‘due diligence’ or a search of all the documents related to the property to ensure that there are no deficiencies with the property that will hinder the proposed sale. Prior to due diligence the buyer and seller may sign a letter of intent or memorandum of understanding, accompanied by ‘earnest money’ or deposit.
Title: Probably the first – and most important thing – the lawyer will check is the title of the seller with respect to the property. It is essential to know that if the seller does not have perfect title, he cannot transfer the same to the buyer.
For example, if the seller is not listed as the owner of the property, he cannot sell it. Similarly, if the property is jointly owned by more than one person, each joint owner would be required to sign the agreement to sell and sale deed, unless any one of them is authorized to act on behalf of the others by way of power of attorney.
A title search is taken at the office of the local sub-registrar. The buyer should ask for all title documents (and copies of the same) right from the first owner of the property or, in the case of property that is extremely old, title documents thirty years prior to the search. This process can take between 8 and 10 days. The lawyer should also ascertain the survey number, village and registration district of the property as these details will be required for registration.
Encumbrances: The office of the local sub-registrar would also have to be searched to see if there are any encumbrances on the property, such as a mortgage, lien, or claim from a third party. Although mortgaging properties is not an exceptional practice, one needs to consider the implications of purchasing a mortgaged property very carefully.
In case the seller defaults in paying his debt, the mortgagee – usually a bank – can attach the property and sell it to recover the debt, despite the fact that the mortgagor/seller no longer owns the property. Also, the mortgage deed might contain a stipulation that the property cannot be sold unless the mortgagee gives a no objection certificate and in the case of mortgaged property the buyer must insist that the seller clears the mortgage or obtains a NOC from the bank. Alternatively, the buyer may contract with the seller to make payment directly to the bank and remove the encumbrance.
Property Tax: The lawyer must also check tax receipts for the past three years to determine whether the seller has paid the requisite property tax to the housing society or, in the case of independent houses, to the municipal authority.
Litigation: It is also essential to ensure that the property is not the subject-matter of any litigation, as cases pending before the courts can take several years, if not decades, to be finally decided.
Probated Will: In case of property that the seller has inherited, the lawyer must check the will by way of which the property was acquired. Although Indian law does not require a will to be probated (i.e, authenticated by a court), this is preferable as a probate ensures legitimacy of the will and is valid against any claims thereafter made against the seller’s right to inheritance of the property. Although challenging a probated will is not unheard of, it is extremely difficult for someone to do so successfully if the will is not fraudulent.
A buyer must also release an advertisement in a newspaper stating his intention to buy the property from the seller, and for our sale properties Cushman and Wakefield will assist with this. This is done so that any objections to the proposed sale are raised in advance and may be dealt with accordingly. The objections may bring to light certain hidden facts, such as an encumbrance, or title defect which might significantly impact a buyer’s decision to purchase the property. In case there is a defect in the title, the entire sale can fall through if not rectified. Buyer may back out of the final sale for the following reasons:
- Defect in title
- Non-payment of property tax (if not remedied)
- Material structural defects in the property
- Zoning/ land use related issues:
- Constructing unsanctioned floors
- Unsanctioned construction on agricultural/coastal land
- Unsanctioned construction plan
- Previously undisclosed encumbrances on property such as mortgages, liens, or claims
- Absence of probated will (if previously undisclosed) Note that the seller has the right to back out of the final sale if the buyer delays the process unnecessarily.
Once the buyer’s lawyer is satisfied that the seller’s title is free from defects, he will issue a title certificate, which is a document stating that the seller has the necessary title to sell the buyer his property.