Gift deed of property

Querist : Anonymous (Querist) 31 May 2024 This query is : Resolved
If a property has a bank loan on it and a gift deed is created without informing the bank, will this deed stand valid?
Also, if this same property is sold with loan still pending, then will the sale proceeds go to the new owner in whose name the gift deed has been made (donee)?
Please explain legal implications of property having a pending loan, on which a gift deed is created without informing bank under these scenarios
1. Property is sold without clearing loan
2. If property is sold, the new buyer will make sale agreement with old owner or new owner (donee)
3. Will gift deed on which stamp duty registration has been paid stand valid if Property is sold with loan pending?

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Quick Summary

Gifting a property with an existing bank loan is legally possible, but the lender retains priority interest and can repossess the property if payments aren't made. While the gift deed can be valid, it's crucial to inform the bank. The recipient (donee) inherits the mortgage liability and must ensure payments are kept up to date. Selling a mortgaged property without clearing the loan can lead to complications regarding ownership and proceeds.

kavksatyanarayana (Expert) 31 May 2024
Without verifying the EC how can the donee accept the gift? The donor should now let the bank know about the registration of the gift and ask to settle the issue.

T. Kalaiselvan, Advocate (Expert) 01 June 2024
Your question is very much hypothetical.
It is not possible for the vendor to sell the property without the original documents, because the transaction pertaining to an immovable property can be done only by a registered document/ The unregistered document is not valid and if the buyer is still buying the proeprty by an unregistered document cannot claim title to the property purchased so.
Therefore you are trying to test the knowledge of the experts here by this question.

P. Venu (Expert) 03 June 2024
In my understanding, provisions of Section 128 of the Transfer of Property Act applies to the given scenario -
"128. Universal donee.—Subject to the provisions of section 127, where a gift consists
of the donor’s whole property, the done is personally liable for all the debts due by [and
liabilities of the donor at the time of the gift to the extent of the property comprised
therein."

As such, gifting a mortgaged property is generally possible, but there are some constraints -

Legality: You can execute a gift deed for a mortgaged property under Section 128 of the Transfer of Property Act.
Mortgagee's rights: The mortgagee (lender) has priority interest in the property. This means they can still repossess and sell the property to recover the debt if the new owner (donee) fails to make the mortgage payments.
Notice to Lender: It's advisable to inform the lender about the gift deed. Their consent might be required depending on the specific loan agreement.
Donee's responsibility: The recipient of the gift (donee) becomes responsible for the mortgage payments.
In essence, the ownership of the property transfers to the donee, but the mortgage liability remains attached to the property.

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