A Loan Against Property (LAP) has become a popular loan product today. Banks and NBFCs (Non-Banking Financial Companies) finance against property subject to certain conditions. The collateral in these loans are properties in the name of the borrower. Let us now look at the types of properties against which you can or cannot obtain loans.
You can take loans against mortgage of residential property, commercial property, industrial property, and warehouses. What are the prime criteria that banks follow while dealing with LAP? When you Apply for a Loan Against Property, banks concentrate on the legal aspect.
They need to safeguard money they lend. If you default on your payments, banks should be able to take possession of the property and sell it to realise their dues. Hence, banks prefer to go for properties with a clear and marketable title.
Here are some different kinds of properties against which lenders do/ do not provide loans:
Such properties are the safest to lend against. These properties have proper maps and a clear sanctioned plan by the respective town planning authority. It is easy to establish the title in the property by searching the office of the Sub-Registrar. Banks check the property for any encumbrances. If there are none, the title holder can create a valid equitable mortgage in favour of the bank. It makes it easy for the banks to initiate recovery proceedings under SARFAESI Act, 2002 (The Securitisation and Reconstruction of Financial Assets & Enforcement of Securities Interest Act) if the borrower defaults on the repayment.
You can find registered properties without a clear sanctioned plan and proper maps. Banks are cautious while financing against such properties. They look for risk mitigation factors like registered sale deed and ‘Agreement to Sale. Since such properties do not have the approval of the Government, problems can arise if the banks initiate recovery proceedings. It will be difficult to find buyers for the property. Hence, banks take additional precautions by insisting on a co-applicant.
This document grants authority to one person on behalf of another person. The most common example is in the case of land-owners going for joint ventures with the builder/developer wherein the developers obtain the right to construct additional houses on the property in exchange for a fixed compensation. The title of the property does not pass on to the GPA holder as it is not an absolute sale. Developers use this ploy to avoid paying stamp duty on the purchase of the property. Banks usually do not finance against such GPA agreements because they do not get clear title to proceed against the borrowers in case of default. However, some Housing Finance Companies and private financiers provide loans by charging high rates of interest.
This concept is prevalent in the Delhi NCR alone. There are more than 360 villages in Delhi that come under the Lal Dora. The land is non-agricultural and reserved for rearing livestock and building residential accommodation for farmers. Banks do not approve loans for property arising under the Lal Dora. However, the new age lenders such as the Peer-to-Peer lenders finance against such properties.
You cannot get any loan against agricultural There are several restrictions for converting agricultural land to non-agricultural land. It makes it difficult for banks to approve loans against such property. We have seen the different types of land against which banks approve LAP.
There are certain other conditions to fulfil.
The idea behind specifying such conditions is that the banks should be able to recover the money in case of default by the borrower. The banks should be able to take possession of the asset and sell them as per the provisions of the SARFAESI Act 2002.
Many banks have a LAP product where they approve loans to senior citizens against properties in their name to enable them to lead a decent life. There is the involvement of an equitable mortgage in favour of the bank.
The bank will not be able to sell the property as long as either of the borrowers (property owner and spouse) is alive. The banks pay them a fixed sum of money every month for their sustenance. There are provisions to pay a lump sum amount as well in case of emergencies like illness, marriage, or educational expenses of children/grandchildren.
On the death of both the borrowers, the banks offer the opportunity to the legal heirs to repay the loan. In case they are unable to do so, the banks can bring the property for sale to realise their dues. You now know what banks look for when you Apply for Loan Against Property Online.
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