SUMIT SIMLAI (Director, Rail) 30 November 2010

Resale of Unregistered Property by Endorsement of Builder

I am planning to purchase a flat in Indirapuram on loan from HDFC Ltd, from an original Allottee who did not get his property registered by the builder. I have paid a token of Rs 50000 to block the booking but later have been informed of certain legal risks in the deal.

While technical verification of the property has been completed and also I have an in-principle approval from HDFC based on my profile, HDFC bank informs me that for legal verification of property, submission of full property documentation is required.

In absence of Sale Deed, bank says that legal verification and hence loan approval can only be given if Allottee has a certain sum of money outstanding out of the total consideration payable towards the builder, to prove that the builder is waiting to be paid this sum of money in order to proceed with registration. Such a statement of accounts showing an amount of Rs 42500 as outstanding has been submitted by seller to me / my bank along with Copies of all receipts, builder's NOC on builder's letterhead and copy of loan account statement of seller (different bank: SBI) have been submitted to HDFC bank.

My broker, the seller’s broker, the bank’s DSA and the bank manager are all confident that there is no legal hassle in this deal and is very common, They are calling this a case of endorsement, whereby the builder gives an NOC for transfer of property from name of original Allottee to me (which he has already given) and also endorses all payment receipts and Allottment letter to be transferred to my name.

All this is making me nervous about the legality of the deal and I am holding back from entering into an Agreement to Sell because then I have to pay a hefty sum of 9 lakh rupees.

Therefore while this process is on, I need to know from a legal experts the legal implications that still exist to my disadvantage. Hence it would be great to hear as follows:

1. I want to know if legally a property can be transferred by a builder from one allottee to another buyer by endorsement as above if the property is not registered.

2. What are the legal requirements / clause of Transfer of Property by Endorsement of Builder, from 1st Allotee to 2nd Allotee for an unregistered property?

3. Can the builder actually register the property in my name directly without registering the property in the name of original allotee under these circumstances of endorsement / transfer, when the property has not been registered earlier?

4. Even HDFC bank seems to be conducting legal verification of the property, is there a possibility that they can bypass legal requirements and pass the property legally, just to ensure that they don’t lose me as a client? My profile makes me eligible for a hefty loan amount.

An early help would be highly appreciated as the seller is in a hurry to close the deal within a week of the legal verification by bank.

Regards,

Sumit Simlai

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6 Replies

VIJAY MONGA (ADVOCATE) 30 November 2010

My dear Sumit,

I would like to make it very much clear that no builder has an authority or any such power to register the property in the name of any buyer by making mere endorsements in his own records. Always remember that unless and until you do not get your Sale agreement or Sale deed registered with the Sub-Registrar under the provisions of Indian Registration Act, 1908 the title of property can not pass in your favour. They are misleading you. You can not become the owner of that property under the eyes of law. BEWARE of these builders as well as sellers. They are evasing heaving stamp duty by violating various provisions of law like Indian Registration Act as well as Indian Stamp Act.

SUMIT SIMLAI (Director, Rail) 30 November 2010

Dear Mr. Monga,

Thanks for your reply. What about endorsement on the Allotment Letter by builder? He has given an NOC for transfer of property to my name which the bank is willing to recognise. A lawyer friend tells me that endorsement on the allotment letter in my name, being intending purchaser, is recognized mode in law. Also that the bank carries out legal search as to title of the property. If the bank clears the title (which is the case with builder) and the builder is executing the sale deed, and the orginal allotee witnesses the sale deed this should secure my interest.

What do you say?

M V Gupta (Advocate) 30 November 2010

Dear Mr. Sumit,

I am in full agreement wqith the views expressed by my learned friend Mr. Monga. Here the important question is whom did you pay the sum of Rs. 50,000/- and who will be signing the sale deed in your favour. It should be noted that issue of mere allotment letter to the first allottee does not confer any right or titile to him unless he has fulfilled the terms of allotment and obtained the Sale deed in his favor. If the first allottee failed to fulfill the terms of the allotment letter, the builder can under the terms of the letter cancel the allotment and sell the property to another prospective buyer. The first allottee cannot question the cancellation. Hence in your case the proper course appears to be for the builder to cancell the allotment given to the first allottee for default committed by him and allot the property to you. Ofcourse it would be better if the builder obtains a letter from the first allottee stating that he is not in a postion to comply with the conditions of the allotment given to him and that he has no objection to the builder allotting the property to any other of his choice. This would obviate any subsequent objections from the first allottee. Thereafter the builder can sell the property to you. I presume the builder is having the requisite POA from the owner of the property to sell the property and sign the sale deed on his behalf. Pl check

VIJAY MONGA (ADVOCATE) 01 December 2010

Dear Mr Sumit,

Must consider the valuable advise of my friend Mr. M.V. Gupta. In your Sale deed, which is going to be executed by the builder, must mention in recital that -the original allottee Mr. so & so has withdrawn his application as well as his claim in the flat in question and to make it more effective he has signed the present sale deed as a witness as a token of his consent.

SUMIT SIMLAI (Director, Rail) 01 December 2010

Dear learned friends

So many thanks for this wonderful chain of advices. I am at peace. Now I shall start drafting the Agreement to Sell where I will include this clause advised by Shri Gupta about owner's willingness etc.

Any idea where I could get good templates? I do have some and would try to develop on it anyway.