GPA transaction validity on mortgaged property
Querist :
Anonymous
(Querist) 24 May 2011
This query is : Resolved
Person X purchased a property from person Y. He availed of a bank loan to do so thus mortgaging the property to the bank. Now, person X gave GPA of the property to person Y ( they are related) after few years while loan repayment was still on and hence the property was not free from hypothecation.Person Y ( the original owner) then uses this GPA to actually sell this property to person Z ( who is related to person Y).
I would like your view on the following :-
1) Firstly, is GPA on a mortgaged property valid ? Does it not violate the bank's rights ?
2) Can sale transactions be done on mortgaged property via a GPA lie this ?
3) Lastly, who will now be liable for repayment of loan - Person X ( orignal debtor), Person Y ( in whose favour GPA was made) or person Z ( the end owner)
Appreciate your view.
Regards
PALNITKAR V.V.
(Expert) 25 May 2011
1. The GPA would be valid despite mortgage.
2. Sale of mortgaged property without consent of the bank would be invalid.
3.the original borrower would be liable to pay the loan dues.
R.Ramachandran
(Expert) 25 May 2011
Very correctly advised by Mr. Palnitkar.
M/s. Y-not legal services
(Expert) 25 May 2011
Little confusion sir, are you sure that GPA is valid while the subject property on mortgage? Please clear me..
Querist :
Anonymous
(Querist) 25 May 2011
Also Sir, there seems to be a dichotomy. If the sale on GPA is invalid how come original lender ( person X) still has liability of loan. Only these 2 scenarios seem feasible :-
(1) Since sale is invalid, Person X is still the owner of the property and hence continues to be liable for the loan.
(2) If for some reason the sale on GPA is recognized as legal than the loan liability should also pass on from Person X to Person Y and finally to Person Z. Isn't it?
Is there some other scenario also.
Thanks for your advice in advance.
Regards
Guest
(Expert) 26 May 2011
The question arises, even after knowing that the property is mortgaged, why Z is willing to purchase the property? The GPA, as stated by Mr. Palnitkar, as per your original questions, is quite valid, as the landlord is not barred to make any GPA.
Sale on GPA would remain invalid till the property remains under mortgage. The GPA holder, while can do any other property related works, like electric & water connections, renting, making agreements with the tenants, additions alterations, etc., but would be eligible to sell the property only after the property is released from mortgage.
PALNITKAR V.V.
(Expert) 26 May 2011
The borrower is X who had validly purchased the property from Y who was the original owner. But after purchase from Y, X becomes the rightful owner. Since X had taken loan being rightful owner, and subesequent transaction by Y with Z being illegal, X continues to the rightful owner, hence he is liable to pay the loan dues. Even if sale of land, for the sake of argument is deemed to be legal, Y is not liable to pay the loan since the loan does not stand transferred in his name automatically. Y must be presumed to have purchased the land subject to mortgage. Hence, the mortgage will continue and if X fails to pay the loan dues, the land can be sold.
