How to close home loan of a seller is one of the prime concern of any buyer. One of my client Ms. Jyoti Suneja finalized a property in Gurgaon. She was worried because seller had home loan from Bank A. In my opinion, buying a mortgaged property is safest bet. To close Home Loan of a seller is not that difficult task as it is perceived by the buyers. 70% of the property transactions in India are through Home Loan. In 40% of the cases buyer has to close Home Loan of a seller. In my previous post on Home Loan Process, we discussed buyer’s Home Loan process. In this post, i will share Five simple steps on how to close Home Loan of a Seller
Foreclosure Documents from Home Loan Provider of a Seller
Immediately after paying token amount or at the time of signing sale agreement, you may demand foreclosure documents from seller. Foreclosure documents are required irrespective of the fact whether you are availing Home Loan or not. To close Home Loan of a seller following foreclosure documents are required
1. Home Loan Closure Letter: This letter summarize the home loan details of a seller e.g. Home Loan Agreement details, EMI details, Principal outstanding, overdue interest, total receivables etc. Please note that Foreclosure receivable amount / calculation is only valid till specific date mentioned in the Home Loan Closure letter. If there is delay in payment / registration then you need to obtain fresh Home Loan Closure Letter as the foreclosure receivable amount to close home loan of a seller will change after the due date mentioned in letter.
2. Home Loan Account Statement: This statement will include break up of amount disbursed and EMI’s paid by the seller with details like mode of payment, date of payment etc. In short, its a debit/credit statement of Home Loan
3. Original Documents with Bank: This document is very critical to close Home Loan of a seller as it mention list of all original documents of property handed over to bank by the seller for mortgage purpose.
If the buyer is also availing Home Loan then he need to submit these documents with his/her home loan provider.
Financial Workings to Close Home Loan
This is most tricky part to close Home Loan of a seller especially (a) if buyer is also availing Home Loan and (b) Sale Agreement & Sale Deed value are different. Buyer need to work out all financial calculations much before registration as buyer need to inform his/her Home Loan provider the break up of payment cheques. A separate payment cheque/s are required to close Home Loan of a seller. In normal scenario, 4-5 cheques are required to make complete payment including outstanding principal payment to close Home Loan of a seller. Also note that buyer’s Home Loan provider will HOLD 10% of Home Loan amount till they receive original documents which are in custody of seller’s Home Loan provider. The amount on-hold is seller’s share in property transaction.
Property Registration
Before property registration, buyer need to close Home Loan of a seller. As i mentioned, depending on principal outstanding & nature of transaction, payment to close home loan can be contributed by buyer or buyer’s home loan provider or by both. Before registration both buyer and seller will visit seller’s Home Loan provider branch. Full and Final Payment towards Home Loan of a seller will be paid through cheque / Banker’s cheque. Seller’s Home Loan provider will issue original payment receipts which will be retained by the buyer. After that both buyer and seller will proceed for property registration.
Letter of Authorization
Most crucial step in entire process. Normally after full and final payment is made to close Home Loan of a seller, it will take 2-3 weeks for seller’s Home Loan provider to return original documents and issue NOC. It is advisable that buyer should collect original documents & NOC from seller’s Home Loan provider. The buyer should take Letter of Authorization from seller stating that seller is authorizing Mr X (buyer) to collect all original documents and NOC of seller’s Home Loan on his behalf. The seller should also submit copy of letter of authorization issued by him to his home loan provider or intimate in writing regarding same.
NOC and Original Documents with Seller’s Home Loan Provider
Last but not least, the onus to collect original documents and NOC rests with buyer. Kindly check all documents thoroughly before signing acknowledgement. This is the last step to close Home Loan of a seller. After collecting original documents, buyer will submit these documents with his home loan provider. Buyer’s Home Loan provider will release balance 10% payment in the name of a seller. Also don’t forget to take acknowledgement from your home loan provider stating list of original documents submitted by you.
It is important for buyer to take all necessary steps and precautions to close Home Loan of a seller. To mitigate risk of loss of original documents or any other risk, it is critical to take over home loan closure process. After full and final payment is made to close home loan of a seller, the entire risk rests with the buyer only.
Hope you liked the post. Please feel free to post your queries and suggestions in following comments section. You can share this post with your friends and family members through social media icons.
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Nice Article Again Nitin ji..
hello sir i am selling my flat i have a home loan and the buyer is
taking a home loan . bank wants the noc from society to disburse the
loan amount to me . but the society is asking me to clear my loan than
only they will issue noc . how is that possible as i will close the loan only when i get the amoumt from buyers bank sbi
Society NOC is basically a No dues certificate. You ask for No dues certificate. Also check any similar case in your society. It seems society will demand some money to issue NOC.
Hi Nitin, Thanks for nice article,
This month I am going to close home loan of IDBI bank which was taken 4 years back. Right now I am outside of India and contacted to IDBI bank to know process of close the account. I requested to hand over original documents to my brother. How ever, Bank said that they will hand over document if I send them legal email with name and address of person whom I want to give documents. Please let me know if this is right process and can I go ahead for closure ?
Normally banks ask for Authorization letter but if bank is ok with email then i don’t foresee any issue. I only suggest to mention details of govt issued identity proof of person who will collect the original documents in your mail and request bank to verify the same before handing over original documents.
hello sir i am selling my flat i have a home loan and the buyer is taking a home loan . bank wants the noc from society to disburse the loan amount to me . but the society is asking me to clear my loan than only they will issue noc .
Hi Nitin,
Thanks for the article, very informative. I am planning to buy a flat on re-sale which is an under construction property due for possession in 2 months. The seller is asking for 20% advance to clear off his home loan. What kind of agreement should I get into to ensure financial security of this transaction.
You should not enter into any direct agreement with seller for payment as the property is under construction. You should sign tri-party transfer agreement between you, seller and the builder. Any payment to seller or builder should be made in accordance with tri-party transfer agreement.
Thanks a ton , Nitin
Hello sir,,
I have two flats in vadodara.. both are as
investment.
Now as a rent i am getting 5500 & 3500 as a
rent from two flats..first one is just complate
site & ready to use..another one is bought in
2009.
Sir i want to start a business which is related
dairy farming..
Need your suggestion … i will take loan on that
& continue rental income or i will better sell
invest in new business.
Thanks
Vadodara is one of the good real estate markets. I suggest you to avail loan for business.
Hi Nitin
Can you please explain me whether the part payment of Home Loan attracts Service Tax.
Regards
Phani Kumar
There is NO Service Tax on Part Payment.
Hello Nitin G.
I am in a process of selling my property. Price is 305000/- on which I have an outstanding home loan of 720000/-
Buyer has agreed to pay 80000/- through check and remaining will be paid by buyer’s bank as loan.
My question is does the original agreement and documents have to be withdrawn by closing the loan ac before stamp duty & registration process. Or should I wait until buyer’s bank has completed the legal & technical verification process and do stamp duty registration later?
Does stamp duty & registration process mean that the property is now with buyer
Reason being I would not want any hindrances in the process, meaning that if the buyer’s bank refuses to give home loan, what would the next course of action be? All documents of the house are clear and it has OC, blue print, share certificate, title etc
correction, buyer has agreed to pay 800000/- thru cheque, 350000 cash and remaining will be paid by buyer’s bank (home loan)
Please check my following post
https://www.nitinbhatia.in/home-loan/close-home-loan/
hi Nitin sir,
i’m about to buy a resale property from a seller where the seller’s outstanding home loan balance is 26,00,000/-. The transaction value is 110,00,000/-. The seller is expecting an advance payment of 26,00,000/- to close his home loan balance. I’m not taking any loan at my end.
As this is 25%of the property value, this can’t be considered as a token and is a hefty advance. I asked the seller to register the property with this advance and have a clause where I pay the balance within 30 days.
Questions
1. Buyer closing off the seller’s loan…is it a norm? Since the buyer is not taking a loan and has to bear the headache of closing seller’s loan. the dice seems totally loaded in favor of the seller.
2. What precautions should a buyer take to ensure that once the loan is closed off, the seller whose EMI’s stop doesn’t call off the deal or delay the possession?
1. I will not suggest you to close seller’s Home Loan. As you rightly mentioned, register the property if seller is insisting to close home loan.
2. You can include certain clauses in agreement to safeguard your interest.
hello nitinji,
iam selling my flat in 5400000/-. for which i have received 300000/- by cheque already. the remaining amount of 5100000/- buyer can only pay me through his home loan provider bank. Loan is sanctioned & buyer’s bank has agreed to pay 5100000 on this property after verifying the copies of document.
but i have outstanding loan of 1100000/- on this property which i need to pay first which neither me nor buyer can arrange now.
so is there a option where buyers bank can directly pay to my bank their outstanding amount of 1100000/- & take custody of original documents. and the buyer bank then pay me just the remaining amount of 4000000/- later to close the deal.
It is possible but i am assuming that buyer’s bank is aware of your existing home loan.
Dear Nitin
Nice article. Small qs..I have a HL with SBI for an under construction property availed in 2012, which will be ready only in 2017. I have availed only 35% of the total sanctioned amount from SBI as I have paid most of the slab and other payments myself. Can I pre close this loan even if the bank has not disbursed the remaining amount? Also there are a few amounts yet to be paid to the builder next year but I will make it myself. So can I close this loan? Thanks
You can prepay and close the Home Loan.
Dear Nitin,
We are planning to purchase a 25 year old apartment gr. flr) in sultanpalya area (cross road), property is around 1000 sq ft (not including car park ) and is of decent construction quality. The price is being quoted is around 30 lakhs and we are thinking this is more than. Could you help us decide if this is a good deal?
The area is in Sultanpalya, near Dinnur Main road North bangalore
The price seems to be ok but as apartment is 25 year old therefore you may not get home loan as it will go for redevelopment. Normally banks don’t lend for old apartments.
Hi Nitin
can you please tell me what is process if the buyer is taking loan from the same bank of seller.
I will not prefer as you will not be able to check the original documents. The process will be similar as i shared in the post.
Hi Nitin,
The property i am buying now has outstanding amount of 4 lacs. Token money has been paid. Now i have to pay 10% amount to the seller by which is more than 4 lac, and he is planing to foreclose his loan by this amount. I am also taking loan from other bank. Is it the right way to go ahead? Although while the agreement i have asked him to foreclose his loan after mine gets sanctioned. He is telling me that will get original paper and NOC after the he foreclose his loan. And then only i will be able to do the registry. Please suggest the correct way to do it.
I request you to go through my post on this page. I have explained how to close seller’s home loan.
Hi Nitin,
I am having a home loan with SBI for my 4 year old flat. I am planning to sell it and have identified a buyer. The buyer’s co-operative society is insisting that once the buyer’s loan is sanctioned, they will take over my loan and then clear the outstanding. Once that is done, we can do the registration. By doing so, they want to ensure that my original documents are properly handed over. Is this fine? Can the buyer say he doesn’t want to buy after the loan is sanctioned and my loan is taken over by this society? In that case. If failed to sell, at least I want my loan to be with SBI, and not with some society. Please guide me.
It depends on the terms and conditions to be recorded in your agreement with the buyer.
Hi Nitinji,
I have paid 20% amount to the seller and done part registration of sale agreement also..
Now , my seller has a existing loan which I hav to close by taking loan from my bank..
My query is :
1. Will I have to do final registration of the property again?
2. Will I have to pay stap duty and registration fees again?, since I have already paid at the time of part registration..
My apologies but your query is not clear. It seems the property is in Maharashtra.
Hi Nitin,
Excellent article. Cleared many doubts. I have one of mine as well:
I am looking at selling my flat which currently has an outstanding of Rs.19.5 lakhs out of the 25.8lacs loan amount i originally received from Axis bank for a loan period of 20years. Since i have already paid up the interest part over the last 9years, now only the principal amount of 19.5lacs is left to be paid.
A buyer is interested in taking over the loan. Can he simply take over the loan and continue paying the EMI for the next 10years through a loan (Considering he is eligible for a 20 lac loan)? (This is instead of me first closing the loan and him applying for a fresh loan)
It is not feasible. Mortgaged property cannot be sold. He has to apply for fresh home loan and takeover your home loan.
Hi Nitin, I am planning to buy a house worth 40 lacs and the seller has loan worth 31 lacs. So basically I have to pay him 31 lacs to his bank before registration and stamp duty to close his loan, so he gets orignal documents for further processing. Now if the seller tries to move away from sale of property How can I claim back my 31 lac or in other words how can I avoid this situations where I have paid 31 lacs before stamp duty and registration.
Please check/go through my post on this page for right steps. I will not suggest any payment in advance.
Unfortunately nothing much can be done as LICHFL has its own set of processes. You may request seller to convince the LICHFL.
If you are too keen to buy this property then last option is you avail home loan (floating interest) from LICHFL only and then transfer home loan to your bank after some time. Only negative is that it will come at a cost to you and secondly you will not be able to check the original documents.
I have paid advance for a resale flat near Ghansoli station. Later the deal was cancelled from my side due to financial condition. Now the owner is not ready to pay the advance amount which i have paid him via cheque.
What is the way forward to get the advance from owner?
You have not mentioned whether you signed any agreement with the seller or not. If agreement is signed then what is the terms and conditions mentioned in the agreement related to the cancellation from your end.
Thanks for the reply Nitin.
Unfortunately no agreement was signed between us. We have just paid token amount via cheque to the owner.
You may file police complaint of cheating and fraud.
Hi Nitin
Thanks for your kind reply.
HI Nitin , thanks for your post.
I Have my case in front of you to answer.
Property costs us about 1.065 cr
seller have out standing loan principle amount about 54 lac. But he cannot pay the emi from last 2 years so now with interest the total value become 84 lac. Now he want to sell us that home.
i have talked to the bank which gave him loan, they are ready to give me loan and close the seller loan. I have paid him about 1 lac by cheque as a token. I am taking 50 lac loan and other payment i do by dd or rtgs, now seller want to negotiate with bank about reducing his payment .beacuse they are charging too high.
Now i am confused how to make sell agreement , and what to right in it. and how to close this deal. can you please clear ??
Let the seller sort out all the issues with bank including negotiations (if any). Once you have clarity on bank outstanding then only you should proceed. In all probability this property is NPA for bank. You also need to check whether bank initiated or is in process to initiate the auction of the property.