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Banks Give Loans to Multiple Persons Against Same Property

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In a property called Shiv Kala Charms, buyers are hardly charmed as it turns out the builder has sold the property to multiple people and many of them have obtained loans against the property too!

HDFC Bank published a list of apartments mortgaged to them in 2011. Seeing that, other banks also published their lists and buyers found they suddenly weren’t exactly sole owners of the houses they had bought.

One of them, Avneesh Kaushik, filed a case against the builder Mahim Mittal that his flat was sold to one other person. Of course he took his loan from Syndicate Bank and the other person was financed by LIC Housing. But other apartments have seen multiple sales financed by the SAME BANK! (Axis bank). From HT:

Documents filed in the multiple legal processes surrounding the housing society show clearly that this was not an isolated error. “Flat number 2294 has been allotted to two buyers – Nathu Ram Saini and Rajesh Behl, both of whom have been given home loans by Axis Bank. Clearly, the fraud being committed by the builder was within the knowledge and with active collusion of the banks,” wrote seven homebuyers in a complaint to the director general of police, Uttar Pradesh, in June this year.

“It is now clear that four banks have together financed 170 of Shiv Kala Charms buyers. Many other banks have financed five to 10 buyers and in many cases people have made payments from their own sources. The developer, at a meeting with some buyers, himself confessed of selling 154 flats to 420 to 430 people,” alleged Vijay Sahai, who bought an apartment in the project by taking a personal loan of `18 lakh.

This can get ugly. The Greater Noida Authority has cancelled the lease of the land to the builder in 2011, for not paying dues. Oh, the directors of the ShivKala Charms builders were booked in an FIR as long ago as 2012!

There’s only legal recourse for the buyers. The money has probably been given to the builder, who hasn’t yet scooted, but is likely to. But the questions come by:

Will this be an NPA for the banks? Banks, remember, will lend to the buyer, not the builder. That means while they take the collateral of the property as security, the loan is given on the creditworthiness and capacity of the borrower. In India, we do not have no-recourse loans – so any housing loan where the borrower stops paying and for which the bank cannot recover money from the collateral, will then have to be paid by OTHER ASSETS of the borrowers.

(Read: Banks can come after you if the builder defaults)

Meaning, for these buyers, the bank will hold them liable even if the property is totally absent. Yes, this will go through courts, who will of course have the final answer, but the legal situation is that the loans taken by a person have to be repaid by that person, even if what he took it for does not exist. If he doesn’t pay, he will be recorded on CIBIL as a defaulter, which restricts his access to future loans.

I don’t recommend buying under-construction property. (Also that we had a similar problem in the family, with the now-dead builder having sold the entire layout twice. A court order saved us, but it was a huge expense)

But will this happen elsewhere? If builders aren’t able to finish properties for lack of funds (or just plain fraud) who then has to pay? If it’s banks, then banks will never lend to under-construction properties again. If it’s owners, then it’s yet another lesson to those that will need to have known better. We can expect a lot more such stories to emerge, especially if real estate prices cool down.

  • lohit says:

    On a somewhat related note, there was news recently of ‘investors’ defaulting on their payments to the builders.
    Most of these investors put up 10-20L at the start of construction, and flip 9-12 months later for a juicy profit. Now that sales have dried up, these investors are facing payment calls from the builder. Many of them had neither the intention nor the means to buy the apartment. In addition to falling sales, the builder now has to sell these previously ‘sold’ apartments too now.

  • MN says:

    In 2010 a Central Mortgage Registry was launched, to avert such frauds
    http://articles.economictimes.indiatimes.com/2010-09-03/news/27597497_1_home-loan-central-registry-nhb
    It was launched with lot of fanfare with a huge database, What is the status of the same?

  • Sanjay says:

    It is shocker that buyer is on losing end. Following lines are certainly eye opener for me :
    Banks, remember, will lend to the buyer, not the builder. That means while they take the collateral of the property as security, the loan is given on the creditworthiness and capacity of the borrower.

  • ZZZZ.... says:

    Quote :
    The home loans are at 10%, right. The builders borrow at 20-25% (and this is the good ones) against collateral. Why would anybody lend to builders at 10%? So the liability, in this case, will be on the buyer. Can’t be any other way, can it?

  • Pallavi says:

    Maybe it is the case of selling one property multiple times to finance another housing project. Repeat same thing over and over again and u have a nice ponzi scheme.