Why an Encumbrance Certificate is necessary before buying a property?

Why an Encumbrance Certificate is necessary before buying a property?

Generally Encumbrance means monetary and legal liabilities associated with it. Certificate of Encumbrance acts as a proof of legal ownership of a property. Encumbrance Certificate tells the transactions of records of a property and explains whether they had any claims. If a property has no legal claims against its title, then a property owner receives a non encumbrance certificate. Generally, banks also demand for encumbrance certificate if you apply for a home loan. Now we know better why do we need it. You can see the format of Encumbrance certificate containing seven fields. We will be discussing each of them in detail.


What are Elements of Encumbrance Certificate:

I would like to discuss about the elements of encumbrance certificate. See the listed items below:

Ownership: It explains the last owner of property who owns it. This element become so important part before buying a property. The rule of thumb says "The current vendor must be the last Vendee of a property".

Transaction History: Its is mandatory to have last 30 years past history related to transactions such as long term lease, mortgages etc. Otherwise a property buyer must see 10-15 years transaction history of buying property.

Chain of Title: To know the title flow of property it is mandatory to verify previous to current owners of a property. Check out a property is free from any fraudulent activities pending by its owner in court.

Clear Title: This property means no extra charges are being applied or pending on purchase of a property. So its a title free property and is liable to the issuance of non encumbrance certificate. Only the thumb rules is "free title of buying property" then might be purchase freely.

Claims:  There should not any claims imposed by third party on a property or long-term leases which might be directly a fraudulent action against property. No mortgages are allowed on behalf of property title otherwise property encountered as fraud.

What an Encumbrance Certificate includes? 

Current Owner: This field shows the current property owner name who bought it.

Size: This field represents the area covered by a property in square feet or acres.

Survey Number: This is an important number to help identify a property in government records.

Value of Transaction: This represents the amount of sale for the property value.

Date of Transaction: This field ensure the date on which a property is purchased.

Land Classification: Under this, types of property is defined such as commercial, residential or an apartment based property.

Land Guideline Value: This is the cost of property per square feet area.

History of Transaction: This field ensures a list of all available buyers of a property with transaction value.

Mortgage Details: If this field contain no data which means there is no charges applicable on property against any loan interest.

Lease Details: If lease details field contains no data that means there no lease either long-term or short term on a property.

Limitations of Encumbrance Certificate:

When a landlord decide to buy a property, it become very essential to check encumbrance certificate for it. Here we are about to explain some limitations associated with encumbrance Certificate which are listed below:

  • Short term leases generally less than 1 year might not be present in encumbrance certificate.

  • Oral tenancy can not be mentioned in encumbrance certificate.

  • Power of Attorney may not be registered.

  • Maintenance, repair related dues will not be reflected.

  • Tax liabilities receipts might not be reflected in encumbrance certificate.

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