Property purchase: the EC factor

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SummaryEC is a common term that we get to hear when looking for a new piece of property.

EC is a common term that we get to hear when looking for a new piece of property. However, most of us still do not understand the implications as well as importance of going through the Encumbrance Certificate or EC at this stage. Proper and authentic documentation forms a vital part of all kinds of property transactions and any carelessness here could prove quite costly at a subsequent stage and might involving various kinds of legal hassles.

What is the EC?

Encumbrance literally means the liability or charge that the property has been subjected as a form of mortgage, which the owner has not yet discharged completely. The EC is primarily a certificate to authenticate the free title of ownership of the property that one is looking to acquire. This certificate issued by the local sub registrar’s office informs the prospective buyer that the property is free of legal dues or any other kind of mortgage at that point. It includes details of financial transactions that the property has undergone during a specified period (usually 30 years) in terms of change of ownership or mortgage.

There are two basic kinds of ECs that are issued - Form 15 and Form 16. The Form 16 is issued when there is ‘Nil Encumbrance Due’ meaning that the property is free of mortgage. The Form 15 is issued when any kind of outstanding mortgage is in existence with details of transactions and parties involved along with reference of documents where such a deed has been executed.

What it does not say

Despite being a good indicator of the property’s ownership status the EC fails to provide comprehensive information, which is why an independent investigation is required while buying the property. Under the Registration Act, 1908 there are certain types of transactions that are not required to be reflected in an EC. Such transactions include:

* Deposit as mortgage by the owner with any bank or financial institution of original documents of the property as a collateral security to obtain credit.

* Any lease that is valid for less than a year need not be shown in the EC.

* Documents of testamentary nature are also exempt from being reflected through the EC.

* Any kind of verbal arrangement of family settlement may also not be understood by going through the EC. Even cases where a separate financial settlement has been reached among the owner and any other party will not

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