The real estate sector has been one of the greatest areas of investments in the present era. Buying and owning their own home has been a dream of many in India. Many people purchase to gain benefits in the future and investment in real estate has been treated as one of the best options in the long term. The investors must however ensure that due diligence is practiced to avoid any kind of fraudulent activities on the property.

The due diligence process is done by buyers themselves or through a realtor or lawyer. If the purchase of property is made without exercising the due diligence process, then you are putting yourself at risk of being cheated. Practicing due diligence can help you avoid any legal disputes in the future or can help your claims in cases of legal suits.

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What are the different types of fraud in Real estate?

The different types of fraud in the real estate sector include:

  • Title deception:

In this case, the title of the property is not clear and the buyer is deceived that the seller is the actual owner of the property with the right to transfer the property. The properties that have not been occupied for a long period, properties with owners abroad or properties engaged in certain legal disputes are some of the properties that are at the risk of title deception.

Title deception of the property also takes place in situations wherein the property is already mortgaged. The seller that is committing fraud may get a forged document to deceive the buyer that he is in the title of the property and that he has the right to transfer the property.

  • Hurried sales:

Some of the sellers try to sell their property in a hurry by making statements such as there are only a few flats at this price, etc. In such cases, the buyers attempt to purchase the property without making enough inquiries which may result in problems in the future. A fake demand is created by the sellers to hide the problems of the property.

  • Delay in possession:

Delay in delivering possession is one of the most common ways of committing fraud. There are many circumstances in which the buyer makes the payment towards the property and is kept waiting for a long period. The delay in delivering possession does not take place only in cases of large projects, it takes place in small projects as well.

It is recommended that the buyer visits the RERA website before purchasing as the website includes details of the verified developers and the project. It also helps the buyer to know the date of possession of the property, thus helps in planning the investments. In cases of delay in delivering property purchased through the RERA website, the authorities take action.

  • Selling without authorization:

While converting the agricultural property into a residential property, permission and authorization need to be obtained. Thus the buyer must ask the seller to produce the authorization letter for the change in the use of the property.

  • Other reasons:

The clause of the contract may not be followed and is one of the most common reasons for termination of the contract. Delivering of the property without the amenities or quality that has been promised by the developer amounts to fraud and the contract can be terminated for noncompliance to the terms of the contract.

Another common way of committing fraud is by selling the property to multiple buyers. In such circumstances, the property is sold to more than one person and the owner runs away resulting in a huge loss for the buyers. There are also circumstances in which the property is sold by the real owner as well as the person with the power of attorney, resulting in multiple transfers of the same property.

Some transactions become fraudulent due to encroachment. This means that the property has been obtained through illegal possession. As a result of this, the seller acts as the true owner of the property and deceives the buyer to buy the property. Misrepresentation or hiding a vital facet of the property is another way to commit fraud.

What are the documents to be checked before purchasing a property to avoid fraud?

There are many ways that a person could be deceived by fraudulent means. Therefore here are some documents that need to be cross-checked before purchasing the property to avoid fraud.

  • Sales Deed:

The sales deed needs to be obtained and registered as it is the core document that proves the transfer of the property from the seller to the buyer. It is important to obtain the original registered sales deed along with ensuring a clear title to avoid being deceived by fraud. The deed should also consist of all the promises that have been made by the seller as a registered sales deed can be conclusive proof of non-performance of the clause.

  • Mother deed:

Mother deed is the document that helps the buyer to trace back the ownership of the property to the first buyer of the property. It is also an important document as it is necessary for the sale of the property in the future as well. Thus the mother deed must be recorded properly in a continuing sequence until the current owner.

  • Approved plan of the building:

The buyer should obtain the approved plan from the builder or the seller if he is purchasing a ready to move in property. If the property is under construction, then the buyer must get the approval plan sanctioned by the municipal authorities or the local authorities authorized to do so.  The documents to get sanctioned includes:

  1. Title deed
  2. City/panchayat survey sketch
  3. Latest tax receipts
  4. Foundation certificate
  5. Land-use certificate
  6. Property assessment extract
  7. Earlier sanctioned plans
  8. Drawings of the property

  • Conversion certificate:

Conversion certificates are those certificates that authorize the use of farmland or agricultural land for a non-cultivating purpose. The state government levies certain zone conversion charges per sq. meter and they’re quite significant. The revenue authorities issue a certificate showing the conversion of the land from an agricultural property to a housing property. A No- objection letter needs to be obtained from the Tahsildar’s office for this purpose.  Failure to obtain this certificate can lead to future complications.

  • Encumbrance Certificate and Tax Receipts:

Encumbrance Certificate needs to be checked and cross-checked as it is an important document that acts as proof in case of mortgages, title transfers, or any legally registered transaction against your property. You are also required to check through the tax receipts to ensure that the seller is not passing on his tax debts to you secretly.

The buyer is authorized to ask the seller to produce the original copy of the latest tax receipts to prove the credibility of the seller. You may confirm the ownership with the municipal authorities if the seller does not have the original copy of the tax receipts. You are also required to check through the various utility bills such as the electricity and water bills to confirm that there is no due pending.

  • Completion and occupancy certificate:

The completion certificate is the certificate issued by the municipal corporation on account of completion of the construction works and inspection to ensure that the construction on the property is carried out according to the sanctioned building plan. The authorities also issue the occupancy certificate showing that the building or house is fit for occupying.

  • Power of Attorney:

Power of attorney is an important document when in circumstances wherein the sale of the property is taken place from a person who is not the actual owner of the property. It is important to confirm that he is authorized to make the transfer. He should have a Power of attorney which is registered and has expressly provided that he is authorized to make the sales transaction.

Conclusion

It is also recommended in the best interest of the person to ensure that the lawyer is engaged in the process of transfer to verify the legal documents and to explain the various impacts that a clause could have on the party. The various options that are available to the party who is a victim of the fraudulent transaction include settling disputes outside court, revoke or termination of the contract, and then getting the cancellation register, to file a criminal suit for cheating or file a civil suit for the breach of the contract.

The seller is bound under clause 55(1) of the Transfer of the Property Act to disclose the material facts affecting the property. Thus summing up, it is to be stated that the parties to the contract should ensure that they practice due diligence and verify the credibility of either of the parties. The various documents should be checked and verified with the authorities to avoid any future conflicts.