Buying a Property? Here is everything you need to know

Legal Due Diligence in respect to Real Estate transactions is basically an investigation of the records of real estate property and everything else which has the relevancy to the lease, sale, purchase or mortgage of the said property. In today’s era, Legal Due diligence is a vital element of the transaction including the sale, purchase or mortgage of immovable property to any Financial Institutions. In India, the process of Due Diligence is a little complex and time-consuming because of the presence of several regulatory authorities. The main purpose of the exercise of due diligence is to achieve a crystal-clear vision of the preceding title of ownership, of the immovable property including all encumbrances, permitted uses, charges, restrictions vested in property, compliance of statutory requirement and method of operations to overcome obstructions if any.

Table of Contents:

1. How to do Due Diligence for Land Purchase?

2. What is Due Diligence Period?

3. What is a Due Diligence Checklist?

4. What happens at the end of Due Diligence?

5. What Documents to Check before Buying a House?

6. What Documents to Check while Buying a Plot of Land?

7. How to Prove the Ownership of the House?

8. How Long should the Real Estate Documents be kept?

9. What to look for when Buying a House?

10. What is the Clear Title?

11. What steps are involved in Property Search Title?

12. How to Search for Lien on Property?

13. How can we Help you?

How to do Due Diligence for Land Purchase?

Before investing in a land/property, one must take certain precautions, which are listed below. Before purchasing the land, you have to make sure that the title of the land must be marketable and clear.

• You should make some searches at Sub-registrar’s offices which will showcase the transactions and encumbrances on the land

• Placing a public notice before the purchase of the land in local newspapers (English as well as local language newspapers) will help you in knowing the existence of any claim or third-party rights over the said land

• If you are transacting inland through Power of Attorney (POA), then it should be properly examined

• Verification of the original documents of the Land is equally important before purchasing the said land

• If the land to be acquired already has buildings/structures, then it is advisable to verify the approval plans, NOCs and necessary permissions

• Before purchasing the land, you also have to make sure that the payment of the property taxes has been done up to the date of transfer(original receipt of the payments should also be verified)

• Check that the local laws or rules are not imposing any restriction on buying of the land

• The buyer also has to make sure that the seller has made the payment of all the amounts due on land

• Check the measurement of the land before registering the land in your name

• FSI (Floor Space Index) amount should also be checked. Because this indicates the construction which can be done on a piece of land.  This is determined by the state’s town and country planning Department

What is Due Diligence Period?

In terms of Real Estate, the time period after the acceptance of a sale and purchase contract to buy a home is termed as Due Diligence Period. It is a very important time period as it determines whether the home is the right fit for the buyer or not. For the seller, this time period generally means the inspection of the property and further conducting of purchase negotiations. The time period for the due diligence varies from one home purchase to another. It depends upon the manner of the execution of the contract. Time taken in due diligence may be as little as 0 days or it can extend up to 30 days depending on the circumstances.

What is a Due Diligence Checklist?

A Due Diligence Checklist is just an organised manner for analysing the company which you are acquiring through merger, sale or any other method. Preparing a checklist helps in knowing about the company’s liabilities, assets, benefits, contracts and potential problems. Normally, there is a specific format for the due diligence checklist but they can also be changed depending upon the characteristics of different industries.

A due diligence checklist is also prepared in the cases of:

• An annual report or audited financial statement

• A private or public financing transaction

• Major bank financing

• Joint ventures

• Initial Public Offerings (IPOs)

• General risk management

What happens at the end of Due Diligence?

A due diligence period has a starting date and an end date; and when the due diligence period expires, the buyer can no longer back out from the deal of purchasing the property for no reason or any reason. If a buyer walks off the deal at the end of the due diligence period, then he/she is at default and will lose his/her earnest money. The due diligence period can also be extended if the same is agreed upon in writing.

The buyer can terminate the contract during the due diligence period but this happens in very rare situations. During the due diligence period, the buyer does an inspection of the property and if there is any discrepancy with the property, then the seller either has to fix it or negotiate the deal amount of the property with the buyer.

What Documents to Check before Buying a House?

Before investing in a property, you must ensure that all documents are up to the mark and are available with the seller or the previous owners of the property.

Given below is a list of documents which are to be acquired before buying a house:

• Absolute sale deed in the name of the present seller

• Extract from BBMP and Khata Certificate

• Latest receipt of the payment of tax

• Information of any loan which is outstanding on the property, latest bank statement

• Encumbrance certificate till date from the date of purchase. Agreement of construction & sale which was executed by developer in the favour of seller

• Latest receipt & the electricity bill for the house

• Apartment association’s NOC

• Sanctioned building plan

• Occupancy or possession certificate from builder

• Title document of the land owner

• GPA, Joint Development Agreement & Sharing/supplementary Agreement, between builder and land owner

• In case no loans are acquired - , are the originals available?

• Copy of all the Registered previous agreements (in the situation of resale property)

• RTC (Records of Rights and Tenancy Corps) or 7/12 extract

• Power of Attorneys (if any)

• Photocopy od Society registration certificate and Society share certificate

What Documents to Check while Buying a Plot of Land?

There are several documents to be investigated before buying a plot of land. Most of the documents are the same as the documents which are needed for buying a property. The documents to be checked are listed below:

• Title Deed, Mother Deed, Conveyance Deed, Sale Deed.

• Katha Certificated and Extracts.

• RTC Extracts

• Mutation Registration Extracts

• Power of Attorney

• Joint Development Agreement

• Building Plan which is sanctioned

• NOC from Pollution Department/ Electricity Department/Port Department/Water Works

• Sale & Construction agreement between the developer and first owner

• Loans on property verification

• Up to date EC for the last 13 years

• No Due Certificate

• Agreement of sale with the seller

• Layout approval plan

• Approval plan

• Occupation Certificate

• Completion Certificate

• Deed of Declaration

• Latest Electricity Bill

How to Prove the Ownership of the House?

The simplest way to prove the ownership of the house is to show the registered deed of the house having your name on it. But sometimes this method is not available. Beside this, there are several other methods to show the proof of your ownership on your property, and those are:

• You can prove the ownership of your property by getting a copy of the deed of the property

• You also have the option of producing the copies of your purchase documents

• Certificate of title can also serve as the proof of  ownership in case of mobile homes

• If you have been paying the property taxes for a house for several years, the receipt can also be produced as the proof

• The ownership can also be proved by the copy of mortgage payment records, if a deed or other ownership documents are not available

• Proof of homeowner’s insurance on your name can also be said to be proof of the ownership

• Utility bills in your name is also a strong proof of the ownership of the property

Besides these, the points elaborated above also serves the purpose of proving the ownership of the property.

How Long should the Real Estate Documents be kept?

Real Estate documents are very important documents for any individual, as they are proof of investments and capitals of that individual. Generally, it would be beneficial to keep all the Real Estate documents carefully for your whole life but these documents are especially important for the initial three years as these are needed for the capital gains tax if you have been audited by the IRS.

These records also help in tracking the cost basis and the taxes which you owe at the time of selling the property or any stock. Once the annual summarised reports are in your hand, you can have the liberty of shredding the monthly statements. If you have made any improvements in your house, then keeping the receipt of that is also equally important. This will help you in reducing the taxable gain on the house at the time of selling it.

What to look for when Buying a House?

There are several aspects of the property which you should check before buying that property. Some of the points are listed below:

• Condition of the roof

• Signs of any foundational damages

• Potential risk of any proximity such as flooding

• Any water damage, weathering or any mold

• Energy efficiency and the insulation of the property

What is a Clear Title?

Clear title, also known as marketable title, absolute title, or good title is the title which a person has of an ownership rights to a specific property -- either movable or immovable. Having a clear title means a title which is free of any liens, encumbrances, charges or litigation. If there is any charge, litigation, restriction or condition on the property then the title will not be termed as a clear title. If there is any restriction on the property, then it can be also rectified or removed by methods which are prescribed under law.

What steps are involved in Property Search Title?

 A buyer should take the following steps while searching the title of the property:

• It is very important to check the chain of title - of the property as it gives the details of the present owner and the original owner of the property

• The second step is to investigate the tax factor of the property. It would show the present scenario of the real estate taxes against the said property

• The third step involves an inspection(generally, the inspection is ordered)

• It is also necessary to know about any judgments which are against the seller or the previous owner of the property

• It is equally important to execute the closing carefully after performing the due research regarding the property

How to Search for Lien on Property?

Liens are basically legal claim against the property. It provides the creditors, a stake on the said property. There are following options to check the lien on the property:

• You have the option of searching the clerk, assessor’s office or country record. You can do that online also

• You can also contact any title company which would be helpful in finding the lien if any

• You can even visit the country recorder, clerk or the assessor’s office in person

How can we Help you?

At the time of buying any property or investing in any Real Estate Property, it is extremely vital to do a proper search of the property. The technical aspects of the property research gets confusing and complex sometimes. For such complex and confusing situations, MyAdvo comes in to help. MyAdvo provides you with a variety of lawyers who are experts in their respective fields. All you have to do is to choose a lawyer who fits your requirement.

MyAdvo acts like a legal concierge that provides the finest legal minds of the industry from over 10,000 lawyers across 500+ districts, right at your screen. Just express your legal queries online via mail on support@myadvo.in or simply call us at +91-9811782573 to resolve any and every kind of legal problems.

Written by: Aman Kumar Saini