Selling a mortgaged property

Jan 05 2013, 08:43 IST
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Home loan EMIs are a major component of a householdís monthly outflow. (Reuters) Home loan EMIs are a major component of a householdís monthly outflow. (Reuters)
SummaryThe process is not simple, but do factor in all eventualities and tax implications.

Home loan EMIs are a major component of a householdís monthly outflow. In a climate of high prices and stagnant income, there are situations when the financial burden becomes unbearable and the home buyer stares at the prospect of defaulting on the loan, or selling the property and relieving himself of the burden.

The most common situations leading to such a decision are:

Delayed possession: The home buyer has to bear the extra cost of paying the rent for the existing house in addition to the EMI burden.

Change in Interest rate: A slight increment in the interest rate pinches the household budget. In such a situation, the buyer either increases the term period of the loan or decides to sell the property.

General inflation: The rising price of commodities and daily utilities also puts a strain on the financial position of home buyers. If the salary does not keep growing at the same pace or above that of the pace of inflation then the only choice one has is to sell the property.

Investors booking profit on their property investment: A property investor in profit or in need of money, may like to sell the loaned property and book the gain. If the buyer frequently carries outs buying and selling than he is liable to pay hefty short term capital gains tax, thus left with lower amount in hand.

SALE PROCESS

Overcoming the burden of the loan by selling the mortgaged property may not be a simple process. The property owner is required to discuss the issue clearly with the lending institution and lay down a plan to address the situation.

If the EMI is overdue but the remaining loan amount is manageable then the property owner can request for a loan restructuring. However, if the remaining loan amount is unmanageable then it is better to sell the property for settling the balance due.

The mortgaged property can be sold in two ways:

CASE I Selling the property along with the loan: If the buyer is ready to take the property along with the loan then the seller can enter into an agreement for sale. The buyer would now make an arrangement with his bank to directly deposit the agreed amount in the sellerís loan account. The seller can now transfer the property to the buyer and settle the loan amount with his own lending institution.

In this case if the buyerís bank and sellerís bank are

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