Investing in real estate can be a long term commitment that needs to be carried out carefully. There are several documents that need to be analyzed before entering into a contractual obligation, one such document being the encumbrance certificate. The term encumbrance can be defined as any charges that are created against a property whereby it is kept as a security to the debt. It is the claim over a property that affects the owner’s ability to transfer the property. The encumbrance certificate is an important document as it provides the buyer with the assurance that the property is free from any form of monetary or legal obligations.
The encumbrance certificate is not only important during the selling and buying of the property, but it is also important in the process of acquiring a loan. It contains all the transactions on the property. An encumbrance certificate can be obtained from the sub-registrar’s office if the property is registered.
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Why is the encumbrance certificate important?
The encumbrance certificate is an important document that shows the transactional history of the property for a period of 12-15 years. The encumbrance certificate is mandatorily required in the following circumstances:
When you are buying the property:
The encumbrance certificate becomes an important document in the selling and purchasing of the property. It is important to be checked by the buyer because it helps them to ensure if they are dealing with the true owner of the property. It also enables them to ensure that there is no financial obligation pending on the property. The document is also important to the seller because he has to clear all his dues and obtain the certificate to show the buyer that the property is free from any financial or legal obligation.
Obtaining a loan to buy the property:
The certificate also plays a vital role as it is important to acquire loans for or against the property. The banks may require the owner of the property to obtain an encumbrance certificate from the authority for the past 12-15 years for the purpose of granting loans.
Withdrawal of provident fund to purchase a home:
In cases of you planning to make a payment on your property from your provident fund, an Encumbrance certificate becomes mandatory. Your employer would ask you to produce the certificate to enable you to withdraw from your provident fund to make your upfront payment on the property.
After the purchase of the property, the buyers have to get a mutation certificate to show the transfer of ownership in the property. In such cases encumbrance certificates need to be produced for obtaining the mutation certificate.
- The encumbrance certificate shows the buyers whether the property has a clear title or not. If certain charges are mentioned in the certificate, it is the financial or legal liabilities that are pending on the property.
How is the encumbrance certificate obtained?
Some states in India like Andhra Pradesh, Odisha, Kerala, Puducherry, Tamil Nadu, and Telangana the certificate can be obtained online. However, an offline application can also be made with the sub-registrar of the jurisdiction in which the property is registered. You are required to download and affix form 22 with an Rs. 2 non-judicial stamp paper and address the same to the Tahsildar. You are also required to submit your address proof, details of the property, and the minimum nominal charge for obtaining the certificate. The standard fee for obtaining the certificate is Rs. 200- 500. However, the fee can vary based on the duration and information for which you seek the certificate.
After investigating through the records for the time period so specified, the encumbrance certificate is issued. The certificate is generally issued within a period of 15-30 days from the day of application. The encumbrance certificate will be then issued in two forms, in cases of the past transaction on the property then form 15 will be issued and if there is no past transaction then form 16 is issued which is also called the Nil Encumbrance certificate.
The various documents that are necessary for obtaining an encumbrance certificate include the applicant’s address proof, his signature, the details of the property, and the deed created. Even though the encumbrance certificate contains the records of transactions on the property, it only shows details that are registered with the registrar. Documents such as a short-term lease or testamentary are excluded from the encumbrance certificate as they are not registered with the sub-registrar.
How to get an encumbrance certificate online?
The application can be made by visiting the website and selecting the ‘submit an application for Encumbrance Certificate from the tab’. Most of the websites require you to log in after which you are to fill out the form which includes the details of the owner, the property, and the encumbrance fee. After declaring that the information provided above is correct then you may save and submit the form.
What are the drawbacks associated with an Encumbrance certificate?
The various drawbacks associated with the encumbrance certificate is:
Faulty encumbrance certificate:
In cases of faulty records, there are chances that the details provided in the encumbrance certificate can also be faulty. This brings in both financial and legal hassle to the buyer as he will be made responsible to clear the dues that are pending on the property resulting in his damage. Thus the owners should ensure that the records with the registrar are kept properly and correctly as in cases of the contrary, he will have to face a legal suit by the buyer to recover his losses.
Encumbrance certificate only shows a transaction that is registered:
The certificate does not contain all the transactions that the property has undergone. It only consists of those details that are registered with the registrar. Thus details in relation to equitable mortgages on the property, testamentary documents, or leases for a period of less than one year will not be covered in the Encumbrance Certificate as these transactions are generally not registered with the registrar. Even oral arrangements such as tenancy, tax liabilities, and unregistered wills or family arrangements are not mentioned in the Encumbrance Certificate. Thus it is to be stated that EC does not provide complete details of the transaction thus it is important on the part of the buyer to make inquiries about the property and not to rely on it completely.
- The banks also do not provide loans in cases of encumbrance certificates contains encumbrances that are pending.
Thus encumbrances are charges against the property for which the property is kept as a security. The encumbrance certificate is issued showing the various transactions of the property and that the property is free from any legal or financial liabilities. The certificate is important in the sale of the property and also in the acquiring loan from banks. It is issued by the sub-registrar and defines if the property has a clear title or not. In cases of encumbrances remaining to be cleared, it will be mentioned in the certificate as the dues. Thus it is an important document that needs to be obtained and cross-checked.