There can be various reasons why a person would like to sell, gift or inherit a mortgaged property. The title of the mortgaged property would be with the lender till the loan is cleared. Hence, there will be legal issues or complications when you would like to take actions on the mortgaged property.
All the three instances – selling, gifting and inheriting a mortgaged property – have to be dealt with caution with proper protocol to make the transaction seamless.
So, let’s crack it one at a time.
How To Gift A Mortgaged Property
Suppose Mr. A bought a property on loan when he was single. He is married now and wishes to gift 50 per cent of the mortgaged property’s ownership to his wife. Can he do so?
As per Section 128 of the Transfer of Property Act, a donor can gift a mortgaged property. However, the donee or the receiver of the gift will be personally liable for all the debts and liabilities associated with the mortgaged property.
It is important to take the consent of the lender in writing, failing to do so can lead to legal litigation and your gift deed can even be revoked by a court of law.
Few Important Things To Consider When Gifting A Mortgaged Property:
- You can clear the outstanding dues on the mortgaged property and then gift it without any problem
- Besides accepting the gift, the donee has to accept the obligation and burden of the mortgaged property
- The benefit of the gift or the property will accrue only when the property is free from mortgage or the debt is cleared
How To Inherit A Mortgaged Property
In a scenario where an individual with a mortgaged property dies, the dependents such as wife or children or any other legal heir can inherit the property by clearing the outstanding loan amount.
What Happens If A Home Loan Insurance Was Taken On The Mortgaged Property?
- The insurer pays off the outstanding loan amount to the lender.
- Dependent must then collect the loan clearance certificate from the lender and original documents of the property.
- Dependent can then get the mutation of the property done in his or her name.
- If the property was leased, then the inheritor must adhere to the lease agreement signed between the lessee and the lessor.
How To Sell A Mortgaged Property
Selling a mortgaged property is a bit complex compared to inheriting or gifting such a property. It depends on two factors:
If The Buyer Wants To Pay From His Own Savings:
The owner of the mortgaged property must enter into an agreement of sale with the buyer. He/She then needs to get a letter from the bank mentioning the outstanding amount due to release the property documents. The buyer will then have to arrange for funds equivalent to the outstanding amount and deposit it in the seller’s home loan account at a pre-fixed given date. Once the home loan is settled, the property document is released and the seller can transfer the property in the buyer’s name.
But this is easier said than done. The buyer may not be able to deposit the complete amount. The seller, in that case, would have to incur additional costs and pay the remaining balance as well. Once it cleared, the bank issues an NOC that the home loan is settled and releases the property documents.
If The Buyer Wants To Take A Home Loan To Pay For The Mortgaged Property
In such a situation, the seller would have to pay off the outstanding dues and clear the home loan to get the property documents released from the bank before the buyer can apply for a new home loan on the same property. Banks would not issue another home loan on a property which is already mortgaged. The seller cannot even transfer the home loan to the buyer even if both had accounts in the same bank.
Once the seller gets the property documents, he can enter into an agreement of sale with the buyer who can then apply for a home loan to buy the same property. The seller can mention the amount paid for the release of the property documents from the bank in the agreement.
It is important to follow all the rules and regulations when you wish to sell, inherit or gift a mortgaged property to avoid legal issues later on.
The writer is CEO, BankBazaar.
BankBazaar.com is a leading online marketplace in India that helps consumers compare and apply for credit card, personal loan, home loan, car loan, and insurance.