The prime security obtained for granting a home loan in the form of deposit of title deeds (popularly known as equitable mortgage) has been both a boon and bane to borrowers as well as lenders.
It may be noted that mortgage is transfer of an interest in a specific immovable property for the purpose of securing payment of money advanced or to be advanced by way of loan. Deposit of title deeds is a type of mortgage normally accepted by banks/Home Finance Companies (HFCs) for advancing home loans.
Deposit of title deeds is the simplest, convenient and most economical type of mortgage, as mere deposit of title deeds with the lender creates mortgage (charge) on the property. In most States, there is nominal stamp duty payable (for example it is 0.1 per cent of loan amount in Karnataka) on such deposit. Hence almost all lenders obtain equitable mortgage as prime security.
In other type of mortgages, normally higher stamp duty and registration charges are payable to Government authorities twice: once when mortgage is to be created at the time of taking loan and the second time, for releasing the mortgage, after repaying the loan.
Further, both borrowers and executives of banks/HFCs will have to visit the office of the registering authority, like SRO (Sub-Registrar’s Office), and undergo the cumbersome procedure of registration, not once, but twice.
Most convenient
Since equitable mortgage was found to be most convenient, which minimises stamp duty charges and avoids the hassles of registering and releasing the mortgage with SROs, almost all lenders have been obtaining it for the past 3-4 decades. And as such millions of home loans have been disbursed by obtaining deposit of title deeds.
A major drawback of mortgage in this method is that the charge created on the property remains known to only the lender and the borrower. The mortgage created will not be recorded with any government authority and hence in all government records, property mortgaged by way of deposit of title deeds remains unencumbered.
The EC (Encumbrance Certificate) issued by the SRO or search report conducted by an advocate will not be able to ascertain the charge created by deposit of title deeds.
Loophole
This loophole in the mortgage process has encouraged people with dubious character to take multiple loans on one property from different banks and HFCs. Such people have deposited original title deeds in one bank for the first loan and by claiming that they have lost the originals, have managed to obtain a number of loans on certified copies of title deeds with other banks and HFCs. Criminal-minded people have gone one step ahead and have created fabricated title documents and obtained multiple loans on one property.
Some fly-by-night operators have duped many flat purchasers by mortgaging the entire plot of land for project finance and selling the flats constructed on it without repaying the loan and have vanished from the scene.
Even many leading banks and HFCs have granted loans on such flats without the knowledge of existing mortgage on the entire property.
Thousands of innocent people have been duped by unscrupulous people who sold such property which were already mortgaged to some banks/HFCs. The gullible buyers had to undergo hardships.
The lenders’ side
On the other hand, lenders also were put to a lot of problems in recovering debts, due to multiple funding on the same property by many lenders.
When home loan disbursals increased from a few thousand crore rupees per annum in the late 1990s to more than a lakh crore rupees per annum in a span of just one decade, such frauds significantly increased the non-performing assets (bad loans), eroding profits of lenders and straining the finance system of the country.
No more multiple funding
To overcome the menace of multiple funding and keeping away wilful defaulters from the financial system, the Union Government had contemplated to establish a central registry of mortgages under chapter IV of SARFAESI (Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest) Act, which was promulgated in 2002.
Accordingly the Central Government has set up CERSAI (Central Registry of Securitisation Asset Reconstruction and Security Interest of India), with effect from March 31, 2011.
CERSAI is a Government company with 51 per cent equity from the Central Government and the remaining is held by select public sector banks and the National Housing Bank (NHB). The Registry works under the provisions of the SARFAESI Act.
Functions of CERSAI
* To maintain a central registry of property on which loans have been availed.
* To develop a web-based system for financial institutions and general public to access the information on mortgaged property.
* To collect and decimate information regarding the amount secured by the charge on the collateral.
* To maintain history of charges created and satisfied on a particular property.
* To enable lenders to get real-time current information regarding the security offered by the borrower.
* To provide potential buyers information about any encumbrance on the property they intend to buy.
* To prevent fraudulent transactions arising out of the same asset being mortgaged to multiple lenders
It is mandatory
The Central Government has made it mandatory for all banks and financial institutions to register the mortgage created (security interest over property to secure loans) with CERSAI, within 30 days of creation of mortgage.
The banks and financial institutions can access the central registry website by paying the prescribed fee and verify whether there are any encumbrances over the property to be funded.
As per the provisions of CERSAI, the general public will be able to verify the records of CERSAI to check whether there are any mortgages existing on the property they intend to buy.
One can expect that very soon, by paying a fee of Rs. 50, any individual can search the records of CERSAI while buying a property and get assured about nil encumbrances on the property.
However, the public will have to access CERSAI through an authorised intermediary like bank, HFC or a financial institution approved by it.
With the setting up of CERSAI, it would be virtually impossible for any borrower to raise loans twice or more against the same property or raise loans using forged documents.
(The author is Director, Institute of Home Finance, and can be contacted at deshpanderp2007@gmail.com )
