Encumbrance Certificate (Decoding India's Property Documents)
Land ownership and transaction is filled with multiple steps, procedures, and documents that are not always the easiest to figure out. Therefore, our new series of articles will focus on decoding the commonly used terms in real estate transactions and property ownership so that you can proceed with your transactions in an informed manner. We first start with the document that is considered the one of the most important sources of information for all property details - the Encumbrance Certificate (EC).
An encumbrance certificate (EC) is a legal document issued by the Stamps and Registrations Department (in most states) that provides details of the ownership of a piece of property. The EC document is instrumental in finding out if the property has any legal or financial encumbrances and is a critical part of the process of buying or selling real estate, protecting all parties from potential legal issues down the line.
Why is an encumbrance certificate important?
The first question that arises here is: Why is an encumbrance certificate important?
Firstly, the encumbrance certificate provides details of the ownership of property ownership and therefore, it also acts as a guarantee that the seller has the legal right to sell the property.
Secondly, the encumbrance certificate contains information about mortgages upon the land. If there is a pending mortgage on the property, the EC is the place to find it.
An encumbrance certificate also contains the history of all financial transactions on a piece of land. Therefore, it establishes a clear flow of property title over the years, giving a full picture of how the land was handed over from one owner to another. Any break in the flow or presence of ambiguities can spell legal risks for the future.
Finally, the EC also gives details about the extent of the land and the boundaries, making it easier for a buyer to ensure they are not being cheated.
Due to these benefits, encumbrance certificates are one of the most important documents in property transactions. They are required
- For protection of seller and buyer in a property sale
- For registration and mutation of property after a sale to transfer the title to the new owner
- By banks and other financial institutes for due diligence on loan applications
Analysing the EC - What does the encumbrance certificate actually denote?
An encumbrance certificate includes the following details for each transaction on the property in the duration for which it is generated.
- Description of the property: This column on the EC gives exact details of the part of the property transacted including the address (mndal, division, survey number and plot number), extent (area) and boundaries on all sides.
- Date of registration of property at the SRO
- Nature of the Deed registered for that particular transaction. The type of the registered deed denotes the kind of transaction that took place. It may be a sale deed, mortgage deed, mortgage release deed, rectification deed, partition deed, or gift deed.
- Guideline value: Also called the circle rate, this is the value of the property according to the local state government
- Consideration value: This is the value of the property as per the registered deed
- Names of the parties involved in the property transaction: Executants are the previous owners of the property and claimants are the new owners.
- Document number and year: The document number provided by the SRO to that particulr registration and the year of registration
- SRO: The name and code of the sub-registrar office where the deed was registrered
Nil EC
A nil EC implies that there are no transactions or encumbrances on the property for the period for which the encumbrance certificate has been generated. So what should you do in this case? One option you have is to expand the duration of search and go further back or you can reach out to the SRO that has jurisdiction over the property and request a certified copy of the nil EC.
But how do you use the EC to know if there is a problem with the property?
While understanding the encumbrance certificate is important, what is crucial is to know when it denotes a reason for concern.
Firstly, an EC can show if there is a mortgage pending on the property. Check for any mortgage deeds in the transactions that do not have a corresponding mortgage release deed as well.
Secondly, it provides you the current owner's name, helping to verify that the seller has the right to sell that property.
Lastly, a preliminary check of the flow of title is to verify that the claimant in a transaction is always the executant in the next for a particular part of the land.
Conclusion
While the encumbrance certificate does not provide a full confirmation of the title being clean, it is a great first step. Many of the common problems with buying property and property ownership can be avoided using this document.
Join us next Tuesday to know more about different documents from the Revenue Department that assist in land ownership verification.
