Can a mortgaged property be sold without NOC from bank?

Have you faced a situation when the builder has sold the property that you had mortgaged without even the bank knowing. This is worrisome and to avoid encountering such a situation, one should be aware about what a mortgage actually is and the implications of selling a mortgaged property with NOC.

What is a mortgaged property?

A property that is used as collateral in exchange of a home loan or loan against property is known as mortgage. In case of a mortgage property, the person who borrows money and pledges his property as security is known as the mortgagor and the lender who lends money in return of legal interest on the property is known as the mortgagee.

See also: How to buy a mortgaged property in India?

While mortgaging a property, a detailed agreement known as the mortgage deed is signed between the lender and the borrower. The mortgage deed details the terms and conditions of a property such as the property remains with the lender until the loan and interest is paid by the borrower. The mortgagee can take possession of the property if the borrower defaults on paying the loan.

Mortgaged property: Quick facts

See also: Know about no-objection certificate for property transfer and various types of NOCs

What is the tenure of a mortgage loan?

A mortgage is available at affordable interest rates for a maximum tenure of around 30 years.

Who is the owner of a mortgaged property?

Even when the property is on mortgage, the person who has taken the money (debtor) is the legal owner of the property. The mortgage deed only gives rights and interests on the property to the lender until the dues are paid back by the borrower within the agreed time.

Documents required to sell mortgaged property

• Clear title deed
• Encumbrance certificate
• Property mortgage deed
• Mutation certificate
• Property tax receipts
• Utility bills
• No objection certificate from bank, society

How can mortgaged property be sold?

Sale of mortgaged property falls under the Transfer of Property Act, 1882.  Under Section 69(1)(c) of the Transfer of Property Act, one can sell a mortgaged property without any dispute and intervention of the court if following conditions are followed.

1)   As per the mortgage deed signed, the mortgagor grants the mortgagee the right to sell the property.

2)   The mortgagor defaults on payments to be made to the mortgagee 90 days (three months) after receiving a notice demanding payment.

3)   The mortgaged property or a part of it is located in large cities/towns such as Mumbai, Kolkata, Chennai, Delhi etc. when the mortgage deed was executed.

See also: Borrower cannot redeem mortgaged property after auction notice: SC

Whose permission is required to sell a mortgaged property?

Banks and non-banking financial companies (NBFC) can sell mortgaged property to recover money under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act, 2002. This act allows them to sell the property without the court’s intervention. The money lender (bank, NBFC) after repeated notices and no response from the buyer can issue a notice and auction the property to recover dues.

How to check if builder has mortgaged property to bank?

In the past, builders have mortgaged property to the bank to raise money for construction. They have run away in between leaving the project in lurch. To check if the property you are evaluating for investment is mortgaged or not, follow the mentioned steps.

1. Check the land records in the sub-registrar’s office.
2. Log on to ministry of corporate affairs portal at www.mca.gov.in/MinistryV2/master+details.html to know more about the builder’s financial liabilities.
3. You can also check the CERSAI portal at https://www.cersai.org.in/CERSAI/asstsrch.prg. If you enter the registration number of the property, you will get details on if the property is under mortgage or not.
4. Builder NOC that the property is not mortgaged

Is it legal for a builder to sell mortgaged property with a bank without NOC?

It is illegal to sell any property that is mortgaged with the bank and a case of fraud can be filed under section 420 of the Indian Penal Code (IPC). In case a builder sells a mortgaged property without bank’s NOC, the bank has the right to repossess the property from the buyer and recover its dues. In such a case, the homebuyer will be the person who would be affected as he would have bought a property without proper due diligence. Hence, it is very important that while buying a property, a high level of due diligence is conducted and all property related documents are checked thoroughly that will ensure that the property a buyer is buying has a clear title that is free of mortgage and encumbrances.

How can a mortgaged property bought from builder without NOC be legalised?

Neeraj Yadav bought a 2BHK in Lucknow in November 2024 and had paid the transaction without availing a home loan. On receiving the encumbrance certificate (EC) of the property a day after registration, Yadav realised that he was cheated by the builder who had sold him a property that was on mortgage with the bank. This was confirmed when Yadav did an online title search. Additionally, since a home loan was not taken, a layer of due diligence from the bank/ NBFC was not done, which also resulted in this problem.

To ensure that the transaction becomes legally valid, according to a lawyer, Yadav has to ensure that

•     The builder pays dues to the bank and gets a no objection certificate (NOC) and registered release deed by the bank to which the property is mortgaged stating that the property is free from its mortgage/lien.
•     Next, a registered ratification deed should be executed between the builder and Yadav that has details about the NOC and the registered release deed. Since the builder has sold the property, he loses his right of redemption as mentioned under section 60 of the Transfer of Property Act, 1882. This automatically will get transferred to Neeraj Yadav, as he is the new legal owner of the property.
•     In case the builder does not cooperate, a case of fraud under section 420 of IPC and criminal breach of trust R/W 120 under section 406 of IPC should be filed that states that he has hidden the truth about property being mortgaged and proceeded with selling it.

How can RERA help if builder sells property mortgaged without bank NOC?

A buyer can file a RERA complaint with the RERA grievance redressal cell and the complaint will be attended within 60 days. If the buyer is not happy with the RERA ruling, he can move the Tribunal Court.

How can you buy a mortgaged property?

Buying a mortgaged property has some benefits as most times these are properties sold in distress with an intent to recover money and not make a profit out of the sale.  In case you are looking at buying a mortgaged property, you should check for properties being listed on the Indian Banks Auctions Mortgaged Properties Information (IBAPI) portal, ministry of finance. While buying a mortgaged property, do not be under the impression that since it’s been listed by a bank, due diligence has been taken care of. The bank may sell the property in as is condition and any property tax dues, society maintenance dues etc. related to the property may be passed on to the new buyer- which should not come as a surprise later. Check each and every point of home buying that you would do otherwise even in case of buying a mortgaged property.

Housing.com POV

During the tenure of the property being in mortgage, the lender should know that he is only the custodian of the property and can’t take decisions such as selling it off without knowledge of the money borrower, who is still the owner. Selling a mortgaged property is a tedious process that involves sending multiple notices, calling for an auction and calling off an auction if the base price is not met with. Finally, if you are evaluating buying a mortgaged property, it is recommended to double check if the property is listed on the Indian Banks Auctions Mortgaged Properties Information (IBAPI) portal, ministry of finance that lists mortgaged properties to be auctioned online by banks.

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