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Tax Benefits on taking Home Loan on Joint Names

admin — Thu, 12 Jan 2012 06:18:36 +0000

By Accommodation Times Bureau
One of the most attractive benefits of taking a home loan is that they help you save tax, while you prepare to invest in a fixed asset. Acquiring a home loan makes you eligible for tax rebates under Section 80C and Section 24 of the Income tax regulations.

Highlights

Tax benefits get divided among co-applicants in case of a joint loan
The division takes place in the same proportion in which the asset is owned by each co-applicant
Each co-applicant can claim a maximum tax rebate of up to Rs. 1 lakh for principal repayment and Rs. 1.5 lakh for interest payment
The very first condition is the house property has to be bought by the individuals jointly, and this should be in their joint names.
The share of each holder should be clearly mentioned so that there is absolute clarity on the percentage ownership of each co-owner.
Tax benefits of Home Loan- Overall there are two types of tax benefits that are available on the repayment of a housing loan.

Interest paid on the loan is eligible for a deduction up to Rs. 1.5 lakh per annum from the taxable income of the individual under Sec 24 when the property is self-occupied or it is one ownership property lying vacant.
The return of the capital of the loan along with the interest up to Rs. 1 lakh is included in the benefit under Sec 80C.
The planning in the entire issue has to be done in such a manner that all the joint holders are able to take the tax benefit and no part of the total repayment goes waste.

Advantage for joint home loan takers-

Tax benefit

Joint holders can claim the maximum tax benefits individually. This means each holder can get a tax rebate of Rs. 1 lakh for principal repayment under Sec 80C and Rs. 1.5 lakh for interest payment under Sec 24.

The tax benefits are applied according to the proportion of the loan taken by everyone involved in the joint loan. For e.g. if the ratio of ownership is 70%:30% then the loan amount of 50 L will be split as 35 L and 15 L respectively and interest/principal applicable to the respective amounts will be taken into account for each individual taking the loan. For claiming your tax, it is best to procure a home sharing agreement, detailing the ownership proportion in a stamp paper, as legal proof for ownership.

To get the best out of the tax savings, it is good to let the partner with the higher pay make a higher contribution towards the home loan resulting in a better tax benefit collectively. In the case of an earning couple, this would make most sense as other expenses can be manged with the income of the person making a lesser share towards the loan. This would help you optimize the benefits from the tax exemption on principal and interest repaid.

Increased Loan Amount Eligibility
If more than one person takes a home loan then income of all the co-owners will be considered by the lenders. This can help increase the size of the loan. In this case, the bank combines the incomes of both the applicants, and thus, can sanction a proportionately higher loan amount. Buying a house jointly facilitates a larger loan as income of all the co-owners would be considered by the lenders.

Additional benefits:

In many states, a lower property registration fee is levied in case the property is owned by women either individually or jointly.
If husband and wife jointly own a property reduces the succession issues.
So taking a joint home loan has the significant twin benefit of increasing your loan eligibility and maximizing your tax rebate. There is one rule banks insist on when you apply for a joint home loan, which is that all co-owners of the property should also be co-applicants but the reverse need not be true.

Under Construction house- Another aspect that needs to be remembered is if you are buying a house under construction that you can claim tax benefits only after the construction of the house is completed.

Joint structure- The term ‘joint benefit’ in a housing loan refers to a situation where more than one person takes and repays a home loan. Here, the co-applicants are family members, which include husband and wife or father and son or father and daughter or mother and son or mother and daughter as the case may be. In such a situation, tax benefits have to be divided between all co-applicants and hence known as joint benefits.

Joint account – The repayment of a joint loan has to be made from a joint account owned by the co-applicants. Each of them needs to contribute his/her share to the account. But there are times when this is not possible and in case the payment is being made from just one person’s account then there has to be a method whereby the other individual is contributing his/her share. This will ensure that the benefits are also available in an adequate manner and that there are conditions that are being fulfilled in the process.

Considering New Direct Tax Code- New borrowers need to keep an eye out for developments in the housing loan sector. While planning any housing loan benefit, they have to keep in mind the conditions mentioned in the New Direct Tax Code. This code, coming into effect from April 2011, eliminates the benefit of a housing loan. This means that if the code is passed in its present format, both the benefits on interest payment as well as capital repayment will not be available to co-applicants.

Disadvantage of a home loan in joint names

1. If you buy another house in future then as per Income Tax Act if a person has more than one house in his name, one of them will be treated as self-occupied, and another will be treated as let-out – even if it is not actually let out on rent. You would need to pay income tax on the rent received if this second house is actually rented out. But if it is not rented out, it is deemed as rented out, and you would have to pay income tax on an amount that you would have received as rent as per prevailing market rates.

2. You have to pay wealth tax on one of your house. As per Wealth tax Act only one house is exempt from Wealth Tax. You have to pay tax on one of the house of your choice but you can deduct loan amount against the house for which you taken loan while calculating taxable wealth.

When one should take Home Loan in Joint names:- Take the home loan in joint names

If You need a higher loan amount then your eligibility in Individual capacity
The income tax savings by opting for a joint loan is significantly higher than a single-name loan
When one should take Home Loan in Joint names -

You have enough loan eligibility as single applicant
The income tax savings by opting for a joint loan is not significantly higher than a single-name loan
You plan to purchase another house in near future

Courtesy : Taxguru

Home Loans On Discount

admin — Tue, 05 Jan 2010 06:10:01 +0000

ICICI Bank and Kotak Mahindra Bank joined the State Bank of India (SBI) and HDFC Ltd to offer discounted loans.

ICICI Bank would offer new loans at a fixed rate of 8.25 per cent for the first two years, irrespective of the loan amount. The ICICI offer would be applicable to loans sanctioned between December 1, 2009 and January 31, 2010, and the first disbursement should be made before March 31, 2010.

On the other hand, Kotak will offer floating rates starting from 7.99 per cent per annum, depending upon the loan amount, to salaried customers. The bank also launched a special scheme under which it will offer loans at a fixed rate of 8.49 per cent for 30 months from the date of disbursement of the money. After that, the applicable floating rate for the balance term will apply. The offer will continue till January 31, 2010. Irrespective of the amount, the 8.49 per cent rate is applicable to all new loans.

Mortgage of Immovable Property

admin — Wed, 02 Sep 2009 11:40:43 +0000

Mortgage of Immovable Property
Every creditor wants the money lent by him to be secure so that in case of the borrower’s failure to repay the amount borrowed, he may rely on the security.
Immovable property is a good security. This is not perishable and not subject to wild fluctuation in the market. Creditors particularly banks and financial institutions insist on immovable property either as primary or collateral security.
The method of taking the immovable property to secure the payment of the money lent is Mortgage.
The Transfer of Property Act (Act IV of 1 882) deals with Mortgage. The relevant sections are 58 to 104 of Chapter IV.
Mortgage in simple terms means transfer of the interest in the immovable property to a creditor to secure the payment of money lent.
It is essential that both the parties, the owner of the immovable property and the creditor, are living persons. The living persons include company or association or body of individuals. They may be incorporated or not.
The immovable property, the interest of which is transferred to the creditor, must be specific in description with boundaries. It should be easily identifiable.
The debtor money lent is an important component of mortgage. it is the payment of the debt, which is secured. The debt may be money advanced, or to be advanced, or existing or future debt.
It also covers the performance of an engagement, which may give rise to monetary liability. The purpose of the mortgage is to secure the payment of the money lent or to be lent.
The person who transfers the interest in the immovable property is Mortgagor. Generally, Mortgagor would be borrower who owns the immovable property. But any other person may also transfer the interest in this immovable property to the lender to secure the payment of money by the borrower.
The person to whom the interest in immovable property is transferred is mortgagee who is creditor or lender. The principal money and the interest, the payment of which is secured, is mortgage money. The document executed by the mortgagor transferring the interest in immovable property to the creditor is called Mortgage Deed.
Persons competent to create a Mortgage Any person competent to enter into a contract can create a mortgage. This excludes minors and lunatics. Guardian of a minor on obtaining permission from the Court can create a mortgage. joint owners of property, partners of firm, Karta of Hindu Undivided Family, can create mortgage.
In case of joint owners, all the co-owners, all the partners in case of a partnership firm, and in case of Hindu Undivided Family all the male members, widows of the deceased male members, and daughters who have been conferred property rights by the state, government have to sign the mortgage deed.

Types of Mortgage
1. Simple Mortgage 2. Mortgage by Conditional Sale 3. Usufructuary Mortgage. 4. English Mortgage 5. Mortgage by Deposit of Title Deeds 6. Anomalous Mortgage
Simple Mortgage and Mortgage by deposit of title deeds are popular types, which are discussed here.

Simple Mortgage
Section 58 (b) of the Transfer of Property Act, defines the Simple Mortgage/Registered Mortgage. In this mortgage:
1) There is transfer of interest in the immovable property to the mortgagee to secure the payment of the money lent.
2) There is no delivery of possession of the immovable property to the mortgagee.
3) Mortgagor binds himself personally to pay the mortgage money
4) Mortgagor agrees expressly or impliedly, that in case of his failure to pay the mortgage money as agreed, the mortgagee (creditor )has the right to get the immovable property sold and the sale proceeds adjusted towards the payments secured.
It is to be noticed that the borrower binds him personally fully to repay the amount borrowed. Only in case of his failure to repay the money, the right to recover the mortgaged money arises.
It is very important to note that the act uses the words “cause to be sold”, which means the property can be sold only through intervention of the Court
The deed of simple mortgage requires to be attested by two witnesses. It also needs to be properly stamped. Registration is necessary if the principal amount is Rupees one hundred or more. Only the principal amount is the criteria and not the interest.
The stamp duty payable on simple mortgage is Ad vaiorem that is based on the value. It varies from state to state. Stamp duty payable in Karnataka is 3% on the amount secured with a maximum of Rupees three lakhs. Registration charges are 2% of the amount secured with a maximum of rupees two lakhs.
Certain states including the State of Karnataka have exempted/given concession in stamp duty and registration charges in case of agricultural loans.
The remedies available under simple mortgage are personal decree against the mortgagor and decree for the sale of the mortgaged prop”. The limitation is twelve years from the date when the mortgage money becomes due (Art. A 62 of limitation Act)

Mortgage by Deposit of Title Deeds
This is also known as equitable mortgage. Section 58 Clause (F) defines the mortgage by deposit of title deeds. In this type of mortgage the mortgagor delivers the documents of title to the immovable property to the creditor in notified places with intent to create security thereon.
The essential features of the mortgage by deposit of title deeds:
1. The debt : The money, the payment of which is secured may be an existing debt or a future one. It may also be a performance of engagement, which gives rise to monetary liability.
2. There must be deposit of title deeds: The Mortgagor (the borrower/owner of the immovable property) delivers the documents of title to the mortgagee (creditor). The delivery may be physical or constructive. The documents delivered should be of title to the immovable property. This refers to the documents, which establish and confer the title of the immovable property to the mortgagor.
It is to be noted that copy of a document is not a document of title. But certified copy of an original document is treated as document of title. However as far as possible only original documents should be accepted for deposit. If any original document is reported to be lost, proper enquiries should be made.
Property documents are of two types: Secondary or Supporting documents.

Primary Documents
These documents confer title. Sale Deed, Gift Deed, Partition Deed, Exchange Deed, Deed of Grant, lease Deed, Sale Certificate, Share Certificate or Membership Certificate with allotment letter in case of Society with no objection letter, Patta of land, fall in this category.
Secondary / Supporting Documents : These documents do not confer any title, but only support the title conferred by the primary documents. Khatha Certificate, Tax Paid receipts, Encumbrance Certificate, Revenue Records and Village Records, Allotment letters, Tax Paid Receipts, Possession Certificates, Tax Assessment Order etc., fall in the category of Secondary/Supporting Documents.
Deposit of Documents
Documents must, be deposited/delivered in notified centres.. The Transfer of Property Act mentions the cities of Kolkotta, Chennai and Mumbai as notified centres. In addition, state government may notify other places as notified centres for deposit of title deeds. At present most of the places up to the level of Taluka centres are notified centres. This restriction applies only to the places where the documents are to be deposited, but not to the place where the immovable property is situated. Documents of the property located in Mangalore may be deposited in Bangalore. Documents of the property situated in non- notified places may be delivered in notified places.
Deposit must be with the intention that the title deeds shall be security for the debt. The intention is very important here.
Documents delivered for safe custody to obtain legal opinion will not establish such intention. As such a forwarding letter stating that the documents are delivered with the intention to create a security for the debt is to be obtained from the mortgagor. Care should be taken not to mention the amount of debt, and the rate of interest in the letter. Such letter should be obtained subsequent to the date of depositing the title deeds and dated accordingly. These measures obviate the implications of Stamp Duty.
Deposit of title must be by a Mortgagor or his agent with the Mortgagee or his agent.
This type of mortgage, is treated at par with other legal mortgages and shall have priority over the mortgages subsequently created, and even registered. This mortgage will be in force so long as title deeds deposited are in possession of the mortgagee. if the mortgagee parts with the possession of the title deeds, the mortgage is extinguished.

Your Rights against Bank Debts

admin — Wed, 02 Sep 2009 11:00:00 +0000

Your Rights against Bank Debts
By Adv. M V Kini
The Hon’ble Supreme Court has held that not to give any hearing to the borrower till all his charged properties are sold and adjusted the Banks dues, is not in conformity with the laws of a democratic state. Therefore, on the guidelines of the Hon’ble Supreme Court, a provision was made by inserting sub-clause 3 (a) to Sec. 13 of the Securitisation Act. The borrower has been given a right to make a representation and raise any objection after getting a notice under section. 13 within expiry of the notice period of 60 days and the Bank is bound to consider such representation/objection and if the representation is found to be unacceptable or untenable, the bank is bound to communicate within “one week” of such representation and give reasons for non-acceptance of their representation made by the borrower. However, it has been specifically provided that the reasonability of the Banks non-acceptance of the representation cannot be challenged either in DRT under Sec.17 or in Court of a District Judge (in case of Jammu & Kashmir). Therefore, it is clear that though “opportunity of being heard” is given to the borrower, but decision communicated by the Bank is not subject to “Appeal” in DRT or in any Civil Courts. However, the borrower’s (citizens) right guaranteed under the Constitution of India to prefer a Writ Petition under Article 226 & 227 is not taken away, as otherwise that section would have been declared as unconstitutional by the Supreme Court. Therefore, the possibility of the borrower to approach the Hon’ble High Court under a “writ” challenging the rejection of his plea by the Bank by giving reasons as to why the action of the Bank is illegal, such petitions cannot be avoided. However, even the High Courts would not like to interfere in such matters, unless the injustice is totally gross. Therefore, the Banks while rejecting the objections or representations made by the borrower should give proper reasons for rejection so that if and when the borrower approach the High Court under a writ, court may find that bank has acted in a bonafide manner and reasons communicated are reasonable so that the writ may be dismissed in limine. If the rejection of the objections is not properly drafted, it may not be in the interest of the bank, as the Hon’ble High Court under writ jurisdiction may call for the “Bank Say” and this will delay the action under the Securitisation Act.
The 2nd amendment made in the year 2004 to the Securitisation Act consequent to the Hon’ble Supreme Court’s judgement in the case of Mardia Chemicals is that, after the sale proceeds were adjusted, the borrower has been given a power to approach the DRT without requiring to deposit any money within 45 days from the date on which such measures were taken by the Bank, and the borrower need not deposit any percentage of the claim of the Bank while approaching the DRT under Sec. 17 of the Securitisation Act. However, there is a time limit prescribed under Sec. 17 that the borrower can approach the DRT within 45 days from the date on which action against the borrower is taken by the Bank. The Tribunal is bound to dispose of this application within a period of 60 days from the date of such application. Under any circumstances, the delay should not be more than 4 months in deciding the application made by the borrower.

Hidden cost for flat purchasers

admin — Fri, 28 Aug 2009 09:57:40 +0000

Hidden cost for flat purchasers
Flat purchasers are been charged heavy amount by the builders, just after full payment but just before giving possession letter. The hidden cost includes Society formation charges, maintenance, Electric meter deposit, club membership, parking, electric cable to the building, general amenities, stamp duty and registration fees, society deposit for free maintenance etc.
Many time the purchaser given to understand that the maintenance is just Rs.2/-. But it means Rs.2/- is society maintenance and not property tax and water tax. Together they go beyond Rs.4/- to Rs.5/- per sq.ft. per month. Society formation charges are Rs.500/- one time and reasonable professional fees. In spite of this, many builders are charging Rs. 10,000/- to Rs.15,000/- per flat. Many times the builder has taken money for this purpose but forget to fulfill his obligation. Maintenance of the society has to be paid only after the building gets Occupation Certificate (OC) from concerned authorities. Before the date of Occupation Certificate , Builders are charging poor flat purchasers heavy maintenance. Actually these charges are collected in lieu of development charges, suppose to be paid by the builder to the local authorities. Flat purchasers should pay the maintenance charges only for a period starting from the date of his legal occupancy.
While selling the flat, builder gives promise to provide electrification. It is builder’s duty to provide electricity. Many builders are charging external cable cost which is supposed to be builders promise.
Apart from this, builders are also taking security deposit in the name of society for future maintenance, club membership fees, parking charges etc.
The stamp authorities have fixed values of properties for different localities based on the information accumulated by them.15 While giving possession letter builders are asking registration receipts. Surprisingly, builders do not have anything to ask for it, legally. Agent purposely does not hand over the receipt. And when purchaser requires it, agents charge them Rs. 4000/- to Rs.6000/- for it. Section 3 of the Indian Evidence Act 1872 state that a “Document” means any matter expressed or described upon any substance by means of letters, figures on marks or by more than are of those for the purpose of recording that matter.16 Documents for property transactions needs to be proved to housing finance company and for creating charges thereon.
In all, one should keep in mind the hidden cost involve in purchasing a flat. Also keep in mind that after paying Processing fees, Administration fees, stamp duty on mortgage of document for housing finance, insurance of the property and first Equated Monthly Installments (EMI) to housing finance, obligation towards Stamp Duty and Registration charges and professional fees, society formation charges, external cable charges, internal road development, club membership entrance fees, brokerage etc., has to be paid one time. Society maintenance, Property Tax, Water Tax, club annual maintenance etc. will have to be paid every month.
The hidden surprise are never calculated. It affects the repaying capacity of the home loan borrower who converts into defaulter, later on.

Reasons for Rejection of Loan application

admin — Fri, 28 Aug 2009 09:52:22 +0000

Reasons for Rejection of Loan application.
Being aware of some of the major reasons of loan rejections can help and be better prepared and save from disappointments.
To ensure that the specific norms with respect to a minimum area of the flat are met with. The ‘minimum area’ norm will vary across Housing Finance Companies so one need to ensure that home meets the minimum area requirement while applying for the loan or else look for an Housing Finance Company that gives a loan as per flat area.
Financial standing of the applicant is checked before loan approval. Affirmative responses to whether his monthly income meets the minimum income requirement, whether he has a fixed source of income, and if he has a clean credit background will ensure getting a loan approved. The personal history of an individual like the number of dependents an individual is scrutinized to ascertain the repayment capability of the individual. A higher number of dependents implies lower repayment capacity. The last 6 months’ savings account statement of the individual will speak about his saving habits and his ability to honor Equated Monthly Installments.
The applicants age when applying for the loan will determine the tenure of the loan and in turn the Equated Monthly Installments.. So the higher the age the lesser the loan tenure and also the chances of getting the loan approved.
Housing Finance Companies are also likely to decline the loan in case of a legal/technical discrepancy like an unclear title deed.
Home loans on resale properties are sanctioned only if they are less than 30 years old. Similarly, the property also has to fall within the geographical limits as defined by the Housing Finance Company for it to sanction the home loan.
Keeping in view, factors effecting the individual home loan borrower, the question now arises how to select a housing finance companies operating in this field in the market. The first and foremost criteria may be the convenience, good and prompt service, acquaintance or dealings with the company or a group company in one way or the other and hassle free processing of papers. The second most important criteria could be a comparative study of the various terms and conditions, being offered by these housing finance companies, such as under:-
Q. Whether the quantum of loan is 80% or 90% of the cost of the property and whether expenses towards transfer, stamp duty, registrations etc are included in the value of the property for this purpose?
Q. Whether the rate of interest is fixed one or the option for adjustable rate of interest, linked to the primary lending rate, is permissible?
Q. Whether the monthly Equated Monthly Installments is calculated on monthly rest or yearly basis?
Q. Whether the rate of interest increases with the term of the loan, say above 15 years or so?
Q. Whether in addition to the security of the property in question, one or two guarantors are required?
Q. Whether any other collateral security is insisted upon?
Q. Whether any pre-payment charges are levied, if the outstanding loan is paid at a particular stage before the expiry of the repayment term?
Q. Whether any commitment charges are levied, if the full sanctioned loan is not availed of?
Q. Whether a memorandum or a letter about deposit of title deeds is taken, because it attracts a substantial amount towards the stamp duty in the state of Maharashtra?
Q. Whether certain concessions such as free group insurance against accidental death of the borrower and/or fire insurance against the destruction of the property are offered?

Fixed V/s. Floating Interest Rates

admin — Fri, 28 Aug 2009 09:49:55 +0000

Fixed Interest Rate Home loans
Now, let us presume Mr. ABC was in the process of buying a house. He was undecided to choose between a fluctuating rate option (in which the interest rates increase or decrease depending on the movement of a base rate) and a fixed rate option in which the rate remains constant over the period of the loan. The variable rate option was quarter percentage point cheaper to start with than the fixed rate option. However as the interest rates were widely expected to move up he decided to go for a fixed rate loan even though the variable rate loan was cheaper to start with. He signed the fixed rate loan. As expected the interest rates went up and Mr. ABC was happy that he had managed to save a pretty packet by following his instinct and locking himself with the fixed rate loan.
However his jubilation was shortlived. His documents had been submitted and he was awaiting disbursement. Such a case the new increased rates would apply on his loan. He had just discovered the dichotomy of the fixed rate loan , i.e they become fixed only on the date of disbursement. In this case Mr. ABC had to pay the new increased rate on his loan even though he had the foresight to anticipate the increase in rates. To be fair to the housing finance institution if the rate had decreased as on the date of disbursement it would have applied the decreased rate for the loan. This incident highlights the ignorance of the normal customer about the mechanics of the fixed rate home loan.
World over the customer has a choice of avoiding this risk by getting into what is called a rate lock arrangement. For a small premium the housing finance company locks the rate available to the customer for a predetermined period, usually not exceeding 90 days. The mechanism normally provides for passing on the benefit of the rate reductions during the interim period between sanction and disbursement while providing for protection from any increase during this period. This enables a customer to plan his house purchase without worrying about interest rate movements.
It have been seen significant interest rate volatility in recent times. All of last year till about October 2006 the rates were falling under the twin pressures of general softening of interest rates in the economy and the intense competition among the home financing institutions.
However the rates have gone up in recent times in line with the general hardening of rates in the economy. Thus the need for a instrument like rate lock is being avidly felt.

Reverse Mortgage

admin — Fri, 28 Aug 2009 09:48:51 +0000

Reverse Mortgage
Introduction:
A reverse mortgage is a loan available to senior citizens, and is used to release the home equity in the property as one lump sum or multiple payments. The homeowner’s obligation to repay the loan is deferred until the owner dies, the home is sold, or the owner leaves the property.
Reverse mortgage encompasses a range of non-recourse mortgage loans which help a borrower get liquid funds against his home equity, without having to move out or having to make any repayments, till he dies or sells the house or moves out. Since bulk of the savings at retirement is typically locked in home equity, it is a powerful device to increase the incomes of the elderly.
In a typical mortgage the homeowner makes a monthly amortized payment to the lender; after each payment the equity increases within his or her property, and typically after the end of the term the mortgage is paid in full and the property is released from the lender. In a reverse mortgage, the home owner makes no payments and all interest is added to the lien on the property. If the owner receives monthly payments, then the debt on the property increases each month.
If a property has increased in value after a reverse mortgage is taken out, it is possible to acquire a second (or third) reverse mortgage over the increased equity in the home. But in certain countries (including the United States), a reverse mortgage must be the first and only mortgage on the property.

Concept:
A borrower starts with a very high equity in his house. The lender extends a non-recourse loan secured by the house property. The borrower may choose to receive the proceeds through A lump sum at the beginning Monthly payments till a fixed term or a lifelong annuity Establishing a credit-line with or without accrual of interest on credit balance A combination of the above
The borrower need not move out of the house or make any payment to the lender, as long he is alive and continue to live in the house or does not sell it. Therefore the loan and interest accumulates till maturity. There is no credit or income requirement to be satisfied. Even if the accumulated loan and interest goes above the realizable value of the house at disposal, the repayment is capped at that value only. Hence reverse mortgage is a case of ‘raising debt, falling equity’.
The amount of loan will be a function of Age of the borrower (life expectancy/ mortality risks) The current value of the property and expected property appreciation rate (real estate market risk) The current interest rate and interest rate volatility (interest rate risk) Closure and servicing costs Specific features chosen: fixed or floating interest; shared appreciation; interest earning credit-line; and mortgage insurance, if any.
Conceptually the reverse mortgage idea is not restricted only to the elderly. However, the product is particularly suited for old people: the older a person is, the more attractive the scheme is. It is attractive to only people with insufficient current income and little financial savings- by implication, retired persons For a given property value, the lower the life expectancy (older the person is), higher is the additional income through an RM. Public policy support including tax incentives is more likely if the borrowers are the elderly. The elderly are particularly likely to attach significant psychological/ emotional/ sentimental value to ‘ageing in place’ without moving out. In fact, the longer they have stayed in their current home, the more valuable this is likely to be, considering the benefits of a familiar neighborhood .
The Indian scenario :
India is a young country. The average age of its citizens is about 26. Moreover, its population is expected to grow at 1.6 per cent annually. The proportion of the working-age population will rise for a long time and remain at a high plateau for a longer time. Therefore, India’s economy would continue to grow at over 6.5 per cent at least until 2040. The demand for housing, as a result, will remain high. The capital value of seasoned housing stock will rise at least as fast as incomes. Insurance companies would not have to dread any decline in home values for the next 35 years.
This also means that those who are 60 now will enjoy rising incomes or very certain incomes until they are 95. Homeowner in reverse mortgages will be protected against inflation. When capital value adjusts to inflation, incomes too can be adjusted upwards. Goods and services will remain affordable to retirees.
Reverse mortgage is made for India. It is a bankable scheme that takes away the sting from defined-contribution pension plans.
Defined-contribution schemes impose two risks on savers: They may earn insufficient returns. Retirees may live unexpectedly long.
At the same time, reverse mortgage is a good bet. It retains the principal flavor of a defined-benefit scheme and provides a guaranteed base income.
To save for retirement, people have to become better at guessing how much they need and how long they will live. Both guesses are tricky. Most people underestimate their longevity and financial needs. Reverse mortgage overcomes a significant part of these problems. It spurs economic activity, provides security and retains the principal flavor of a defined-benefit scheme.

DHFL – India’s First Reverse Mortgage:
India’s second-largest private housing finance company, Dewan Housing Finance Corporation Limited (DHFL), is the first off the block In India with a reverse mortgage scheme. The scheme, called ‘Saksham’ is targeted at retired senior citizens above 60 years of age. The scheme is similar to a housing loan except that in a home loan the borrower pays a fixed EMI to the lending institution, while in reverse mortgage the lender pays the borrower a fixed sum of money on a monthly (or quarterly) basis, the total payment being equal to the value of the property and the interest on the loaned amount. After the death of the borrower and the borrower’s spouse, the housing company sells the property to recover the amount paid out along with interest at a rate similar to interest on housing loans. The scheme is designed to supplement the monthly income of senior citizens. This scheme is offered to retired people above the age of 60 years who own property and have been living in it for at least one year.
The loan amount is sanctioned based on the: Age of the borrower Average value of the property Rate of interest on the loan The payment method chosen by the borrower
The eligibility for a reverse mortgage loan is simple. The borrower should be 60 years of age, living in self-owned property, which is free of any other encumbrances, and is an approved construction. The amount loaned would depend on the estimated value of the property (minus the interest cost) its condition and life. The loan does not apply to ancestral property. Saksham allows customers and their spouses to live in the property as long as they are alive, without the fear of eviction even after the tenure expires. The surplus amount is then paid to the legal heirs of the borrower. The legal heirs also have the option to repossess the property after the demise of both customers and their spouses.

Guidelines – The National Housing Bank (NHB):
A subsidiary of the Reserve Bank of India (RBI), is preparing the guidelines on reverse mortgage. Although the finer aspects of reverse mortgage have still not been finalized, some things have been made public
Loans will be given only to those who have a clear title on their property. This rule applies to both stand-alone houses as well as flats. In case of inherited property, all claimants to it will need to give their consent in writing. Sridhar says that if the property is inherited, the lender (banks or HFCs) will be guided by legal advice on the borrower’s clear rights or title. Another requirement is that prospective borrowers will be able to pledge their house only if they are using it as their permanent primary residence. Sridhar says it may not be possible to provide reverse mortgage for houses on power of attorney. As per the present rule, the lender will take possession of the house, sell it and adjust its dues if the borrower dies. It doesn’t specify what course would be taken if the children of such borrowers neither have the financial means to reclaim the house nor are willing to vacate it.
To take into account any change in the value of the property during the tenure of the loan, there will be a provision for its revaluation at least once in five years.
The rules, however, might need a few modifications to ensure smooth operation of the scheme. One clause that is drawing a lot of criticism is the one that fixes the maximum loan tenure at 15 years. The NHB will need to address the concern of borrowers over their predicament if they outlive the credit period. At present, the rules say that a borrower’s supply of income will be severed if he survives the loan tenure. However, he can continue to live in the house till his/her demise. The response to the product will be affected if this state of affairs persists. There exists a big segment in Tier-II and Tier-III cities and semi-urban areas waiting to be tapped.
Unlike in the West, joint families are still prevalent in many parts of India, although their number has shrunk. In many cases, the culture of joint families persists even after nuclearisation. In this scenario, many parents would still prefer to bequeath their house to their children rather than live off it. Reverse mortgage is a product that requires a great degree of regulation and transparency, both of which are missing in India.

Regulation:
Under the existing regulatory regime, banks come under the RBI and HFCs under the NHB. However, the recommendations of the regulator are only advisory in nature. The NHB plans to provide guarantee to borrowers against default by lenders by starting a loan mortgage company. The company would also safeguard the interest of lenders in case borrowers default the terms of the agreement. The extent to which the potential of reverse mortgage gets realized in India will depend a lot on the guidelines that will govern it. Much will also depend on how Indian society takes to it. But there is no doubt that it can lend dignity and peace of mind to elders by opening a financial lifeline for them.

Basic guidelines for reverse mortgage:
1. When applying for a reverse mortgage, all owners must apply and sign the papers. The applicants must be at least 62 years old, own the home, and must generally live in the dwelling. One note though, mobile homes are usually not eligible for reverse mortgages.
2. A borrower must seek counseling from a HUD approved counseling agency prior to applying for a reverse mortgage. This counseling is mandatory. During this meeting, the process is explained and a determination of eligibility is made.
3. A borrower can request regular monthly payments, a credit line, or a lump sum distribution of cash. A combination of these payment plans can also be requested.
4. Typically, a reverse mortgage loan requires no repayment for as long as you live in your home. If the home is sold, the borrower moves, or the last living borrower dies, the loan must be repaid. Usually the home is sold to repay the mortgage.
5. Since you still own your home, you are responsible for repairs, taxes, and insurance. A default on any of these could cause your loan to become payable in full.
6. There are certain costs involved in a reverse mortgage. The lowest cost mortgages are through the state and local governments and the highest through private lenders. Some costs include application fees, closing costs, insurance, appraisal fees, credit report fees, and possibly a monthly service fee.
7. A reverse mortgage could affect eligibility for federal or state assistance. There could also be an impact on an estate when the owner dies. The home is usually sold to repay the loan or the heirs can choose to repay. If the home is sold and the selling price exceeds the amount of the balance owed, the excess goes to the heirs.
8. Money received from a reverse mortgage is tax-free and does not affect social security or medicare benefits. It could affect Medicaid or other state assistance programs.
Many senior adults are finding it hard to live on their fixed retirement incomes and are looking for ways to supplement those incomes. For some, the largest asset they own is their home, but they do not want to sell their home and move. For these individuals, there is an option called Home Equity Conversion (HEC).
One type of home equity conversion is a reverse mortgage. The equity or cash value of the house is used to provide income to repay the loan. All reverse mortgage options are not the same. They have different eligibility requirements, income amounts, timing of payments, interest rates, and/or initial costs. Homeowner should compare the different options, keeping in mind their goals and needs.
Advantages: The value of your house, not income, is used to determine eligibility. One can receive a lump sum, a line of credit, or a monthly amount, without having to make a monthly repayment. One does not have to sell ones house and move – one can continue to live in the same familiar surroundings. One does not have to worry about losing one’s house to foreclosure since the payments are made out of equity in the home, not from your income. The loan must be repaid when the house is no longer used as your personal residence. However, the lender can only look to the proceeds from the sale of the house for repayment. They cannot go to your heirs if the house sells for less than what was borrowed. Money can be used for any purpose. The senior citizens are entitled to regular cash flows at their choice – monthly, quarterly, half yearly and annually. The loan is given without any income criteria at an age where normal loans are not available. No loan servicing or repayment required during the lifetime of borrower and spouse. If the borrower dies during the period, the spouse will continue to get the loan amount for 15 years. Tax treatment of a RML will be as loan, not income, so no tax will be payable on the regular cash flows. The borrower and their spouse can continue to stay in the house till both die. Heirs of the borrower will be entitled to get the surplus of sale value of the property. Borrower/heir can get mortgage released by paying loan with interest without having to sell property at any time. Prepayment of loan is allowed. NHB to guarantee obligation of banks/housing finance companies to pay the committed loan amount as regular sums over a period of time.
Reassessment of property value will be done periodically, or at least once every 5 years. Borrower can cancel the mortgage within three days of approval/disbursement, subject to return of loan amount.
Disadvantages: Interest for a reverse mortgage is compounded, and cannot be deducted on income taxes until you repay it. The income one receives decreases the equity in one’s home and the equity may not be adequate for ones future needs or for ones estate. Interest rates and initial costs (application fees, points and closing costs) are usually higher for a reverse mortgage than for other equity loans. Income ends when one sells ones house or no longer uses it as a principal residence. Payments may affect Supplemental Security Income and Medicaid payments. One may need to pay off ones existing mortgage out of the proceeds of one’s reverse mortgage. One will be required to maintain the house, pay the taxes, and carry property insurance. This loan product has a maximum tenure of only 15 years. If the borrower outlives this period, the regular cash flows will stop. Basis of property valuation is not clear. Requirement of clear title to property in the name of the borrower to get the loan. Three days period to cancel loan is too less. Should be at least 15 days to go through the fine print. Various fees to be added to borrower’s liability, which can be quite substantial.
Eligibility:
One could be eligible if one owns one’s own home, use the home as one’s principal residence, and are at least 60 years of age. One must also have adequate equity in the home.
A lender looks at the equity in the home plus any expected appreciation or depreciation in the value of the home to calculate a base amount. The costs associated with any reverse mortgage loan (application fees, interest rates, closing costs, initial charges, sales commissions, and homeowner’s insurance) also must be considered.
The lender and the homeowner must work together to determine the type of payment, the payment amount, and the time period.
Risks for Lenders:
The risks associated with offering any new product or service in a market can be substantial. Costs have to be recovered from revenue and a required level of sales achieved to turn a profit.
For Reverse Mortgages, however, additional risks are inherent because the contract may last for anywhere up to 30 years or more. Financially, the lender must consider a myriad of possible factors when determining the price and conditions associated with the loan. A miscalculation of the rates and amounts offered may lead to the accumulated amount owed to the lender being greater than the house value. Given that reverse mortgage contracts generally guarantee that the borrower will not pay back more than the house value, this situation will lead to the lender making a loss on the contract. Interest rate variations are an area of primary concern. An increase in rates over the loan term will add substantially to the amount owed to the company due to the compounding nature of the debt. If rates increase for a long period the accumulated debt may exceed the house price and a loss on the loan may eventuate. While some lenders are attempting to remove this risk by the use of fixed interest rates, this may be a hindrance to marketing by making the product appear less attractive.
Also known as home equity release schemes or home income plans, a reverse mortgage allows a home owner to receive a lump sum payment and/or income stream.
These payments to the home owner represent loan payments which accrue with interest until the owner moves house or die. At this point the accumulated loan is repaid from the proceeds of the house’s sale. Because of its structure the reverse mortgage can be very relevant for asset rich, cash poor individuals and offers a way for retirees to supplement their income. Given the above trends and market size it is unsurprising that there is increasing interest in this product from both providers and customers. Further evidence of this interest is in the number of providers, which has increased substantially this year.
Undoubtedly other providers are currently testing the water and will follow shortly. However, while the time for marketing and sales may be right, there are still significant risks to any company wishing to enter or operate in the reverse mortgage market. House price variations are a risk on the asset side of the equation. If house prices for instance were to fall or remain static over an extended period of time, once again lenders may find themselves making losses. Further complexity occurs with house prices since they are influenced by many factors. The type of dwelling (house/flat/townhouse), the construction method, the suburb, the city, the level of maintenance and even the houses’ individual characteristics will all influence the current and future price. Increasing longevity, leading to the possibility of increased tenure in the family home places a risk on the lender.
The longer the reverse mortgage contract runs, the greater the effect of the compounding interest and the greater the probability that the loan will exceed the house value. Other risks such as bad publicity, fraud and the level and accuracy of customer advice are not to be underestimated. The US reverse mortgage market is only now recovering from the misselling of products in the 1980s. Some customers who received poor advice at the time subsequently had their homes repossessed when interest rates turned against them. While the outcome of these risks cannot be directly expressed mathematically they still warrant careful attention and must be considered when designing the product offering. Only by fully understanding the risks involved and designing their product
Example
A wide variety of loan options are available depending upon your age, the amount of equity available, the time period of the loan, and the way payments are disbursed.
For example, Mary Jones, a 75-year-old widow whose home is her principal residence, is looking at a ten-year reverse mortgage that will provide her with additional monthly income of approximately $450. At the end of the ten years the monthly income payment will stop. But because her loan is through an insured lender (loans offered by HUD approved lenders have government guarantees), the loan will not have to be repaid until she sells the home, moves, or dies.

Special features of product offerings by various HFCs

admin — Fri, 28 Aug 2009 09:45:21 +0000

Special features of product offerings by various HFCs:
Standard Chartered ANZ has launched the Home Saver Account . Along with the Home Loan, your will get a FREE current bank account into which you may deposit your monthly salary. The EMI for the loan will be automatically reduced from your account. The excess balance in your savings account will be saved interest that will be adjusted against your future EMI payments. The bank claims that the effective interest rate gets reduced by upto 45% because of this scheme.

Citibank offer loans with no guarantors. Most banks require that you present a guarantor who will back you up if you default on your loan repayment. It can often be embarrassing to ask friends to stand guarantor as most banks do not accept relatives as guarantors. Citibank gives home loans upto 90% of the property value, the highest from any bank ( only Tata Hsg Fin. matched this offer)Citibank offers a flexi-savings account to reduce your cost of borrowing. The bank will automatically open a Saving Account from which you can give standing instructions to deduct the EMI payments for the loan. You can then prepay the loan at any point in time and be given instant credit for the same, in case you get a large lump-sum annual bonus from your employer. Should you require money in an emergency at any point you can avail of a over draft on this savings account at an interest rate that is the same as that on your Home loan. This works out much cheaper than taking an over draft on a normal savings account
GIC Housing Fin. gives a free personal accident cover along with the loan. Oriental Bank of Commerce has started to offer a free property insurance cover of the value of property and a free accident cover of upto Rs. 5 lacs.GICHFL gives Consumer loans for purchase of home equipment at the same interest rate as the home loan to customers at rates of interest that are the lower than other consumer loans. The total loan amount including the housing loan can be upto 90% of the value of the home. The tenure of the consumer loan is restricted to 5 years.
HDFC offer Flexible (Customised) Repayment Schemes, keeping in mind the fact that each individual has a unique problem requiring unique solutions, HDFC has developed various repayment options like Step Up Repayment Facility, Flexible Loan Instalment and Balloon Payment Scheme Pari Passu/ Second Mortgage Arrangements: HDFC has a tie-up with a large number of Public Sector Organizations and banks which enables us to offer loans to your employees with the flexibility of their spouse also availing a loan from his/her own employer Safe Document Storage Facilities: HDFC has state of art storage facilities, which are theft and fire proof, at various locations where loan and property documents are stored. In this way valuable documents are stored safely over the period of the loan and are released almost immediately after a customer repays his loan A customer, after availing of a loan can approach HDFC anytime thereafter to increase the Equated Monthly Instalment which will help him repay the loan faster.Home Conversion Loan offered to its existing customers who are interested in moving to a new house. Through this scheme customers can apply to have their existing loan transferred towards the purchase of the new home. Customers may also apply for an additional loan amount for the purchase of the new house. This gives the customer the option of selling their existing house, if they wish to, without having to repay their old loan The fixed rate loan can be converted to floating without any penalty charges. However, you will be charged 2% if you refinance the loan from another company
Hudco will waive the last 2 EMI payments on the loan if the customer has a perfect repayment record with no bounced cheques. The loan amount initially taken must exceed Rs. 5 lacs and no prepayments where to have been made during the tenure of the loan. This is not available for the Floating rate loan.There is a discounted start-up fee for Government employees. The Administrating fees stand reduced from 0.7% to 0.5% only .Free triple insurance – property cover, earthquake cover and personal accident cover. given free along with the loan ( not available for the Floating rate loan)You can prepay the entire loan in any year without any prepayment penalty. Each prepayment has to be atleast 10% of the outstanding loan. However, the floating rate loan has a 1% prepayment penalty.

HSBC offers flexible interest rate loans that can be reset every year depending on the prevailing interest rates at that point. The new interest rate will be applicable for the rolling one year Guarantor is required only for loans more than Rs. 10 lacs. Else no guarantor You can prepay upto 25% of the outstanding loan in any year without paying a penalty. For amounts over that, 2% penalty levied.

ICICI launches a 30 year tenure home loan, the longest available ICICI also launches a variable rate loan with a monthly rest basis versus the regular fixed rate loan that is on an annual rest basis No guarantors are required for loans upto 20 years in most cases.No pre payment fees for any part payment as long as the loan is not fully retired, else 2% charge on pre paid amount. You can repay upto 33% of the outstanding loan in any year without paying penalty. Free accident death cover for the owner. Special 100% funding for select properties Higher eligibility for self-employed professionals through segment-specific schemes

LIC Hsg Finance Ltd. will lower quoted interest rate by 0.5% for loans covered by a life insurance cover that is taken from LIC. The life cover must be taken for a minimum period that covers the tenure of the Home Loan

SBI offers Home Loans with no start-up costs. Most banks charge as high as 2% as processing and administrative fees. Prepayment is 2% if the entire loan is pre paid else it is 0%. Avoid this penalty by prepaying upto 99% of your loan if need be

Tata Hsg Finance offers Home Loans upto 90% of the value of the property and 100% in some new projects. The company has been taken over by IDBI. Prepayment penalty of 0% for upto 4 prepayments in each year. The entire loan can be retired without incurring any penalty. Free accident and property insurance. The premium payable for a Tata AIG Single Premium Life Cover can also be included in the loan amount sanctioned.
IDBI Bank offers balance transfer scheme. If you have taken a Fixed rate loan at a high rate of interest a few years back, then you can enter into an arrangement with IDBI bank to transfer the loan to them at the current lower rate of interest. You will also get free gifts to compensate you for the difference as the old and new EMI. The original EMI cheques will be used by IDBI to recover the loan amount from you over the remaining tenure of the loan.
IDBI Home Finance : Special Scheme for Age above 50 Years Clients , Called 50 Plus Scheme
Canfin Homes : Floating rate loans launched, special schemes for good quality, credit worthy customers.
HDFC : Has launched a monthly rest product. Free Credit Card, Life Cover at discount..
HUDCO : Floating rate loans launched
LIC Hsg Finance : Floating rate loans launched
SBI : Processing fee 0%, Admin fee 0% and prepayment fee of 0%

Housing Loans & Various Types of Frauds Detected by Banks

admin — Wed, 12 Aug 2009 10:30:18 +0000

HOUSING LOANS & VARIOUS TYPES OF FRAUDS DETECTED BY BANKS

After the various big Bank scams of the period from 1990s, Banks felt that it is necessary to spread their risks by advancing monies to individuals, specially against mortgage of immovable property, by means of housing finance. This kind of advance has not only spread the risk and also generated lot of economic and civil construction activities. The defaults in housing finance was almost negligible. Therefore, it was considered as a very good business proposal for all the Banks to go in for housing finance. Thus, there was an unhealthy competition between various Banks/Financial Institutions and many Banks/FIs aggressively tried to capture the housing finance business and many a times circumventing the requisite security aspects of such advances. Since competition between Banks & FIs was so severe, many Banks & FIs ignored the basic safety measures. Thus the entry of large scale fraudsters in the housing finance became easy.

Many Banks did not insist upon taking Legal Scrutiny Reports i.e. prior to entertaining the loan proposal, copies of the documents submitted by the intending borrower is given to the panel lawyers, who would take search in the Land Records and other records to ascertain that the documents submitted by the borrower are genuine and there are relevant entries in the Land Records maintained by the State and that there is chain documents atleast for a period of 13 years, so that the credentials of the borrower is established.

Obviously, this verification of documents takes time in view of the fact that in Sub-Registrar’s Office and Land Record’s Office, there is hardly any facilities and since large number of such Applicants for housing loan are emanating, Banks feel that is causing delay in disbursing of their loan and to meet the competition and to avoid cost and delay in making disbursal of loans, Banks/FIs avoided taking Legal Scrutiny Reports. Therefore, Banks started disbursing loans without taking search, thus opening flood gates for the fraudsters to submit bogus documents and submit coloured zerox to show that they hold original documents and Banks/FIs were cheated by unscrupulous people.

Various types of frauds could easily be committed on the financial sector by these unscrupulous people, because Banks/FIs started resorting to unhealthy competition, ignoring safety device.

Various types of frauds committed are as under:-

(1) Fabrication of Income Certificate, Balance Sheets,etc.

With a view to get larger amount of money than the capacity of the borrower to repay, the borrowers were induced to produce bogus income certificate and balance sheets,etc. Thus Banks granted larger amount of loan, which the borrower could not repay resulted into frauds. Verification of documents was not made compulsory to avoid disbursal. Thus number of frauds took place on this methodology.

(2) The 2nd type of fraud committed are that the Bankers hand over the Bankers Pay Order while disbursing loan in the hands of the borrower himself, and in many cases the borrower resorted to frauds by opening a false Bank Account in the name of the Payee of the Pay Order, which should be actually the Vendor or the Builder, but the Pay Order issued by the Bank are encashed through opening a bogus bank account and the borrower himself started decanting the money without handing over the Pay Order to the Vendor, thereby the Vendor has not received any money and the borrower has encashed the same. This kind of frauds could take place, because Banks were very negligent in handing over the Pay Order of the sale price to the Borrower himself, and many borrowers out of their ingenuinity, open separate bank account and encash the same without there being a sale transaction or procuring any immovable property. Thus the borrower has not purchased any property but the amount has been paid to him by the Bank, which he has encashed fraudulently. Thus Bank’s money are at stake.

This kind of fraud could have been avoided by making the borrower to write the Account No., Bank and Branch Name of the Vendor and the Banks insisting upon issuing Pay Order stating the Account No., Bank and Branch Name of the Vendor, so that the Pay Order could have been encashed in that account only, and the borrower is asked to produce a request letter from the Vendor that the money should be paid by means of Pay Order payable to his specified Bank Account. The Pay Order ought to have been handed over to the Vendor or his representative who visits the Registration Office for executing the Sale Deed and his signature should have been obtained against delivery of the Pay Order. Under no circumstances, the Pay Order should be handed over to the Borrower.

(3) Over valuation of the property

In this kind of fraud, the Valuers in the panel of the Bank join hands with the borrower and give an exorbitant Valuation Report and induce the bank to give higher loans than what the property deserves. Thus borrower would use the money for other than procuring the property and he will not be in a position to repay the same, as there is no asset to sustain the repayment. This kind of frauds can be avoided by giving valuation work to 2 different Valuers, if the amount advanced is more than Rs.10 Lacs or so, and even the Bank Officers must enquire about the market price of the said property, before disbursal of the loan.

(4) Multiple Financing

The borrower make one genuine document and pay the stamp duty, Register the same with Sub-Registrar, etc. Thereafter, take a colour zerox of the same and make some changes in the documents and submit to various Banks for the same property and if these coloured zerox are handed over to Panel Advocates, and Panel Advocates take inspection of the records, he could find out that this property has already been mortgaged to another bank and the fraud can be detected prior to disbursement of the Loan. Where the Banks are not engaging Advocates for taking search, the incidence of coloured zerox fraud are more and frequent.

(5) Title Deeds are forged

There are instances of borrower producing false title certificates by printing Advocate’s Letter Heads and submitting the same to the Bank, showing that the Bank’s Panel Advocate has given the Title Certificate. To avoid such type of frauds, the Bank should hand over the papers directly to the Panel Advocates and the Advocates should send the Legal Scrutiny Report in a Sealed Envelope to the Bank. If this kind of procedure is followed, producing false Certificates can be avoided.

In early 2000, even stamp duty was shown to have been paid by franking the Sale Agreement with huge amount of stamp duty,shown as paid. It came to be subsequently known as Telgi Scam. Telgi has purchased Franking Machine from Government Printing Press as scrap and he started using parallel franking work and received crores of Rupees from various fraudsters causing thousands of crores of loss to the Exchequer and Banks, as the Banks advanced huge money and the entire transactions were bogus. In many cases, even all stationery, receipts,etc. belonging to Government were printed and made forged documents and the Banks relied upon the same and disbursed the loan. If search would have been taken, this kind of frauds can come out openly before disbursal of the loan.

(6) Bookings of Under construction Flats

In this case, under construction flats are booked and the documents are registered and after taking the loan, the borrower would go to the Builder and cancel the booking and the Builder refunding the money to the borrower without the knowledge of the Bank.

Many a times, original documents of Sale Deed deposited are with the Bank while creating Equitable Mortgage and Banks do not insist upon all relevant documents, thereby, as and when the Share Certificate is issued by the Society, the borrower would take the Original Share Certificate alongwith zerox copies of Sale Deed,etc. and go to another Bank and take loan on the same property. Hence, Banks should insist upon Original Sale Deed, Society’s NOC,etc.

In Mumbai or places where Unit Holders in a building are forming into a Statutory Body, NOC from that Body must be taken on record signed by atleast 2/3 office bearers of the said Body and preferably the Bank should verify from the Society about the genuineness of the NOC issued by the Society to mortgage the flat and the Society should certify that there is no earlier mortgage and they will not register any further mortgage on the said property.

Interest Rate on housing loans are reduced to the minimum, so that maximum number of genuine borrowers can get the benefit of having their own residence or business premises. Therefore, the margin of profit in such transactions for the Bank was so low that they could not take up the huge bad debts. Hence, the Banks have now tightened the screws and also increased the rate of interest and by that genuine borrowers are suffering. Banks and FIs must be properly guided by Indian Banks Association or some Statutory Authority and see that minimum basic parameters for disbursal of housing loan must be set, and all Banks must comply with the same, so that all are on equal ground level. Because there was no Statutory Body regulating the housing finance disbursement, each Banks/FIs started competing with each other and flouting the rules & regulations and safety requirements, thus burned their fingers in housing finance. Now many of the Banks are facing huge financial burden on account of this fraudulent transactions.

It is our experience that if the Banks were to insist upon taking search of the Land Records by engaging Lawyers, the chances of detecting the frauds are more, though inspite of having searches by Advocates, the incidence of frauds cannot be totally eliminated but in most of the cases it can be arrested.

State Government must give more importance to safety for these Banks/FIs, by providing adequate facilities at the Land Records Department, so that Advocate’s Search Clerks may have adequate infrastructure made available, so that he can take inspection of the records without any haste. In many of the places, the Land Record Books are in torn condition for years together and Search Clerks cannot verify for these particular number of years, and thereby there is large scale scope for frauds. In many of the progressive States, there is a system of Advocates applying to the Land Records Office and they give Certificate of Non-Encumbrance at a nominal cost. Thus the chances of frauds are eliminated in such States on this account.

In Land Records Department, there is hardly any sitting arrangement to enable Search Clerks to take search comfortably, and one book is available and there are more than 100 people waiting to take search. Hence, the Court Clerks to meet the deadline of time limit, just pay the search fee and bring the receipt and say that they have taken the search. This kind of frauds can be avoided, if the State Government takes adequate care to maintain Land Records and make available extract and Non-Encumbrance Certificate, without any delay.

In Maharashtra, the entire Land Records are being computerized. May be down the line in 2 or 3 years, we may be in a position to get Non-Encumbrance Certificate on the computer itself. If that happens, all Banks may go in for Non-Encumbrance Certificate before disbursal of the loan. The Banks should also insist upon the State Governments maintaining a detailed Register at the Sub-Registrar’s Office so that even if Equitable Mortgage is created by the Bank, must be entered compulsorily in that Register, so that the instances of double mortgage by using coloured zerox and fabricated documents could be arrested.