09 MAY, 2020

Loan against property is abbreviated as LAP. It is an amazing tool to obtain required financial assistance. Moreover, there are various benefits of getting a loan against property, such as competitive interest rates, longer tenure, increased eligibility etc. That is why many borrowers apply for a mortgage loan against property. However, not all applications are accepted by the bank. Many times banks reject the applications for a mortgage loan due to the following reasons:

Disputed Property

Property disputes are very common in India. The disputes can be between the developer and buyer, or among the families. Once a property is recorded as a disputed property on the legal records, banks and non-banking financial companies (NBFCs) avoid  considering it for a property mortgage loan.

Illegal Property

Many times, home owners develop additional structures like parking spaces or fences or verandas without taking proper permission from the authorities. Sometimes, even the entire properties are illegal. If the property you are providing as security while taking a loan is illegal or consists of any illegal structure, then there is a high chance that the bank will reject your LAP application.

Old Property

The age of the property is one of the most important factor banks and NBFCs use to evaluate the quality of properties. The older is the property, the higher the chances of damaged construction. This eventually reduces the price of the property in the real estate market and increases the chance of risk. Therefore, banks often reject the LAP application where the property is older than 20 years.

Property not on the Name of the Applicant

The property serves as a mortgage or security when you apply for a loan against property. So, in case of default, the banks get the right to sell the property and recover the loan amount. This can only happen when you are the rightful legal owner of the property. When the property is not owned by you, banks reject your LAP application. By doing this, banks avoid a risky transaction.

The above were the main reasons why LAP applications are rejected. Many people fill out LAP application by thinking that they are easily sanctioned by the bank. However, if property provided as a mortgage against the loan falls under any of the above four categories, the chances of banks accepting the LAP application decrease significantly. But, there are a few solutions or precautions you could take to get your application approved in future.

When your property is old, you can bring out the constructional changes in order to improve to quality of it. This may increase the chances of banks reconsidering your application. Moreover, in case of property not legally registered on your name, you can follow the procedure to gain the legal ownership and re-apply. This would increase your chances of getting mortgage loan application sanctioned.

Lastly, in the case of disputed properties or illegal properties, the chances of approval of LAP application are pretty thin. Therefore, the only thing you can do is to hire a legal adviser to find a suitable solution for this scenario.

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Disclaimer: This Article is for information purpose only. The views expressed in this Article do not necessarily constitute the views of Kotak Mahindra Bank Ltd. (“Bank”) or its employees. Bank make no warranty of any kind with respect to the completeness or accuracy of the material and articles contained in this Newsletter. The information contained in this Article is sourced from empaneled external experts for the benefit of the customers and it does not constitute legal advice from Kotak. Kotak, its directors, employees and the contributors shall not be responsible or liable for any damage or loss resulting from or arising due to reliance on or use of any information contained herein.