Should you really take Legal Opinion while buying a home loan funded property?

POSTED BY Jagoinvestor ON May 15, 2017 COMMENTS (8)

Are you looking to buy a home which is already funded by a home loan and someone else is paying the EMI?

Does it make sense to rely only on the bank for verification process or should you take the second legal opinion? Most customers have this query when they are buying a property and availing a home loan.

Legal opinion on 2nd property

They are well aware that the FIs (financial institutions) have a panel of lawyers that do this day in and day out but still want to satisfy themselves by getting an opinion from that one ‘recommended’ lawyer that their uncle knows.While it is a harsh truth that no property can be legally proofed to a 100%, there are a couple of things which need to be considered while deciding to take a second legal opinion.

Let us consider two kinds of properties – one where there is a large apartment complex and second where it is an individual plot or a small apartment complex.

Case #1 : Large Apartment complex

When a corporate real estate developer intends to purchase a large parcel of land and develop it, they know they are going to invest a huge amount of time and money.

Large apartments in India

They already have the experience to pick up the right projects. They also have a tried and tested lawyer or legal department to check details and guide them through all the steps till they reach the point of selling apartment units.

It’s at this ‘late stage’ that the bank receives the set of papers and the em-paneled lawyer comes in and usually it is a matter of checking off the title, EC’s (encumbrance certificate) and other revenue records.

Such developers also have the financial might to settle any disputes that can be a legal hassle.In the unlikely event that there is a problem in the title / parent documents, then the owners can join together to fight against the developer or any other party.

Division of costs and burden

The financial costs can also be distributed, reducing the burden. However, this is likely to be an unwieldy and argumentative coalition so this is not a major advantage. To sum it up, these kinds of properties developed by a reputed builder are ‘less risky’.

In any case, it is a good idea for all buyers to keep a copy of documents pertaining to legal such as the legal opinion, copies of all documents including sanction plan and other statutory documents as far as the land on which the project has come up is concerned.

Case #2 : Individual House on a plot

Coming to the other classification of property – individual house / plot or small apartment complexes, it is worth taking a second opinion. The first and basic reason is that it is good to have a legal opinion in place.

Bunglow in India

The FI treats its legal opinion as confidential and does not share it with the customer. So, if the customer wishes to understand the intricacies of the property and also have a document to refer to at a later date, this is necessary. Even if the property is to be sold, the potential buyer would have more confidence considering that the legal clearance had been taken earlier.

However, one has to consider the cost of the opinion. It could be prohibitive considering there are payments to be made including the FIs processing fees, insurance premium and stamp duty of 0.25% to the government for availing the loan.

Hire a lawyer to do title search

The next best option is to commission a lawyer to conduct a title search on the property and give a clear report. This is different from what the FI em-paneled lawyer does (which is a title clearance report, checking the EC (encumbrance certificate) and an additional check of the approved building plans).

A title search report essentially consists of going to the sub registrar’s office and verifying the revenue records, ensuring there aren’t any open encumbrances or claims by any party. Usually, this is done for a period of 30 years. This will be an additional and strong check for a clear title to the property.

You will find a lot of articles out there detailing the list of documents one needs to check before purchasing a property. Many of the common issues are also listed. These are definitely worth perusing and acting upon. It is important to remember that purchasing a property is not the only important aspect, having peaceful possession of it is equally important.

This is a guest article by Pravin Mathew from Bangalore, who is a reader of this website. Incase you have any questions, we will be happy to answer it in comments section.

8 replies on this article “Should you really take Legal Opinion while buying a home loan funded property?”

  1. harsh says:

    Dear Manish,

    Bank charged me 15,000 bucks for doing the legal and technical check of the property. Now (after 4 months), can I demand them a copy of it (what exactly they did in those checks?). Its HDFC bank

    1. You can try for that.

      I dont think they have done that only for you. I think its more of like this – What ever legal work and checks they have done before, now they are recovering from each client by charging a fix sum of money.


  2. I did exactly what you adviced.Hired a lawyer and dud a title search .It was very useful and put me at peace .Also one can’t really check everything alone .You need professional help

    1. Glad to hear that ! .. thanks for sharing that !

  3. Dr. Hendre Rajeshwar says:

    Good information. Please explain what precautions need to be taken in case of Purchase of resale flat.


    While Buying an Apartment or individual houses with Bank Loans, the lender himself asks for a set of papers to enable him to decide about the eligibility of the person to borrow, property credentials etc. Under such circumstances, it appears that a separate legal verification may not be required.
    I would like to be enlightened.

    1. Thats the point .. they do enquire from their side, but at times it has happened that its not full proof. Hence its suggested to do your own bit

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