21 SEPTEMBER, 2022

Encumbrance refers to claims on a property by parties other than the title holder, which may be financial or non-financial. An Encumbrance certificate is used as proof of property ownership and is an essential document during property transfer. The certificate validates any monetary or legal liabilities associated with the property. An encumbrance certificate for home loan is among the most crucial documents that need to be presented by homeowners. The certificate is also required while purchasing or putting up a property for sale, for home loan applications, or for applying for a loan against a property. The Encumbrance certificate (EC) can be considered as a piece of paper stating legal ownership over a property.

An Encumbrance certificate provides information about all the registered transactions that took place on a property in the specified time frame. Essentially, an EC can track records of up to 30 years. The property can be duly verified using an EC and a home loan provisional certificate detailing the property's associated loans.

Importance of an Encumbrance Certificate

The EC is a critical document offering numerous benefits, as described below.

  • While purchasing a property, buyers face the risk of inheriting liabilities linked to the property. The EC is a critical document confirming that the property does not have any outstanding liabilities. Through an EC, individuals seeking to buy a property are assured that the previous owners have not taken a loan against the property in question.
  • Individuals seeking a loan against property or who apply for home loan can furnish this document as proof that they are the owner of the property and eligible for the loan.
  • The EC is also required for the mutation of a property.
  • If a land or property tax remains unpaid for more than three years, the document is furnished to the village/panchayat officer to update the records.
  • An EC is required when an individual wants to withdraw money from a PF account.

How to obtain an EC

The applicants can obtain the encumbrance certificate from the sub registrar's office through an application. The application is to be made in the region where the property is registered. The applicants must submit additional documents along with the application for obtaining an EC. The list of documents, which need to be annexed to the application, is detailed below. The sub registrar's office reviews the documentation provided by the applicant before issuing the EC.

The application consists of Form 22, which includes details of the buyer, details of the seller, details about the property, type of document, period in question, etc. The sub registrar's office issues the EC in Form 15 or Form 16 per the activities carried out in the specified period. The different kind of Encumbrance Certificates is detailed below.

Form 15

Form 15 is issued if the property has encumbrance during the defined period. It entails details such as the nature of encumbrance, loan, lease, parties involved, and the document's registered number, among other information.

Form 16

In case the property does not have any encumbrance during the defined period, a nil-encumbrance certificate is issued in Form 16.

Fee

In addition to the filled-out application and mandated documents, the sub registrar's office also asks for a specified fee that needs to be paid by the applicant. This fee is paid as a processing charge to procure the required details in the form of an Encumbrance Certificate.

Essential Documents needed to obtain an Encumbrance Certificate

It is essential to produce the following documents to obtain an EC

  1. Document of property registration
  2. Property and its possession deed details
  3. Title deed
  4. Sale deed or gift deed, or partition deed if the deed has been completed previously
  5. A copy of the reference letter of authority
  6. Address proof
  7. A duly filled application through Form 22

Online Application

Some states in India also allow for the application of EC through their online portals. However, the methodology of application differs from one state to the other depending upon their websites and their interface. Also, some states still don't have a facility for an online application, and one must follow the manual procedure as detailed above. The applicants can review if their state or the state where the property in question is listed as a portal that accepts online applications. The steps to apply for the application are self-explanatory, and the documentation is similar to the ones used in manual applications.

Tracking application status for Encumbrance Certificates

As the sub registrar’s office accepts and receives the application, the applicants receive an acknowledgment/reference number. The acknowledgment/reference number is provided in the case of both manual and online applications. The applicants can use this number to track the status of their applications. The processing of EC usually takes about 15-20 days and can also vary from state to state.

Conclusion

An encumbrance Certificate is pivotal in verifying liabilities associated with any property. The EC can help the buyer ensure that the property in question is free of obligations and that there are no dues, taxes, or other associated charges. The EC is not just beneficial to prospective new buyers but also the existing owners of the property. The EC is one of the mandated documents in loan against property applications. The current owner can provide the EC along with other documents to the lending institutions for easy and quick processing of a loan against property. The EC can be obtained physically through an application to the sub-registrar of the region where the property is listed. An online application is also allowed in some areas wherein the application is made through the web portals of the state, and a soft copy of the EC is made available for the applicant to download and print in a physical form. 

Benefits of EC to

  1. Buyer: Can help in evaluating the prospective property for any obligation and monetary dues. A home loan certificate provided by the seller can be utilized as an additional check.
  2. Seller: An EC with no dues and clear transactions can help in selling the property quickly. A clear property helps in attracting buyers easily. A possession certificate for home loan is the other document that the seller must provide to the buyer.
  3. Current owner: The EC provides for a strong validation for property ownership and can be used to verify collateral when applying for a loan against property.

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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.

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.