Transactions related to real estate and mortgages call for a fair share of paperwork. Among the list of requisite documentation, one needs to furnish an encumbrance certificate or EC, also known as bhar-mukt praman in Hindi, which establishes clear ownership of the property in question. Simply put, when buying or selling a house, an EC is used to ensure it is free from any monetary or legal liabilities to facilitate smooth property transactions.
Definition and Purpose of an Encumbrance Certificate (EC)
Encumbrance means impediment or hindrance to one’s legal claim on a property that can impact ownership transfer during a transaction. If a house is pledged or mortgaged, the lender will add a ‘lien’ or charge to the property. This is done to ensure that the borrower or homeowner does not sell the house until full repayment of the loan.
An encumbrance certificate is an official document which proves whether the house is free from any disputes or obligations. For instance, if the owner has acquired the house through a gift deed, you can check the details in the EC. Or, if the house is attached by the court, sold to anyone else or if there are other existing owners who could stake a claim on the property.
Before buying a house, one should ensure it has a clear title. If you find any charges on the EC, it is necessary to rectify them before proceeding.
Importance of EC in Real Estate Transactions
An encumbrance certificate is an important document required while buying or selling real estate for the following reasons:
An encumbrance certificate contains information on all registered transactions carried out on the property for a specified period of time, usually up to 30 years. The following charges come under the purview of encumbrances and find detailed mention in the EC:
An encumbrance certificate is issued by the sub-registrar’s office where the property has been registered. When you request an EC for a particular number of years, you will receive information for that duration only.
If the house has no encumbrances, a nil-encumbrance certificate or non-encumbrance certificate (NEC) will be issued. This indicates a clear title and absence of lien for safe ownership transfer.
Significance of an Encumbrance Certificate
An encumbrance certificate is vital in the following instances:
Home sellers need to furnish an EC to prove clear title so that the property may be transferred without any problems. On their part, homebuyers should carefully check the EC before purchasing a house to understand if there are any financial or legal obligations attached to the asset that may affect their ownership rights.
When you apply for a Home Loan or a Loan Against Property, lenders will require an encumbrance certificate to ascertain any existing loans or liabilities before approving the loan.
Employees who wish to withdraw their Provident Fund (PF) money to buy a property are required to submit an EC to show that the house they want to purchase holds no legal disputes or financial liabilities.
New homeowners must present an encumbrance certificate when carrying out mutation of property records after buying or inheriting a house. This will help them update their name and other details in the government revenue records.
Individuals who seek to sell their residential flat in a building complex must arrange for an EC to indicate updated payment of all dues such as maintenance charges, property tax, water bill, and electricity bill.
Obtaining an Encumbrance Certificate
An encumbrance certificate is issued by the sub-registrar in whose jurisdiction the property lies. This is the same office where the property was first registered at the time of its purchase by the current and previous owners.
What Are the Eligibility Criteria to Apply for an EC?
Individuals who wish to sell their property can apply for an encumbrance certificate offline as well as online in some selective states. You can fill out and submit the forms as instructed. You will also need to pay an application fee, depending on the location of the property and the time frame for which you seek an EC. The charges differ from state to state.
Those who own houses in any of the following states can easily apply and download their encumbrance certificate online:
What Are the Documents Required to Apply for EC?
Given below is the list of documents required to apply for an encumbrance certificate:
Note: Additional documents may be requested by the concerned authority.
How Do You Download the EC Online?
There may be certain variations in the online process to apply and download an encumbrance certificate depending on each state’s website requirement. Generally, the steps include as follows:
Online applications are normally processed much faster as compared to offline applications taking just two to three working days. Whereas, if you opt for the offline mode of application, it might take around 15 to 30 days.
Checking Property History and Transactions
Since an encumbrance certificate traces previous transactions and records its legal and financial history, it can prove ownership change and sales conducted over the years rendering it invaluable for minimising property-related frauds. Thus, it holds legal validity for all official purposes and in the court of law when settling title and ownership disputes.
Utilising Encumbrance Certificate in Real Estate Transactions
In India, there are two types of encumbrance certificates used in real estate transactions. These are:
1. Form no. 15 – Encumbrance certificate is issued as Form no. 15 if there are encumbrances on the property for the given period. It provides a detailed look at all registered transactions such as sale deeds, gift deeds, mortgage deeds, lease deeds, court orders and so on, which can impact the title and ownership rights of property sellers.
2. Form no. 16 – A Form no. 16 encumbrance certificate is given when no lender has placed a lien on the property or there are no encumbrances for the specified duration. It certifies that the house holds a clear title and has no outstanding charges or claims.
Encumbrance Certificate v/s Title Deed
Property transactions involve extensive paperwork. While an encumbrance certificate denotes pending legal dues, liabilities or disputes against a property; a title deed helps buyers verify whether the seller of the house is the true owner and has the right to sell it.
A title deed is a formal document that conveys how the property has been inherited, owned, transferred or allotted by an authority. It also contains information regarding how much land a person owns, its description and location. Land ownership rights are transferred from one person to another through title deeds, which are then registered and deposited with the sub-registrar’s office.
In addition to ensuring that sellers provide an encumbrance certificate, homebuyers must conduct personal checks on the property to see if it is clear of encumbrances. Make sure that all the paperwork like title deeds, sale deeds, registration documents, occupation certificates, possession certificates, etc. are in order to eliminate snags at a later date, especially if you wish to avail of housing finance for buying a house. Having the right documentation, credit profile and eligibility will guarantee that you secure Home Loans at the most competitive interest rates and terms bringing down your overall cost of credit.
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