The most common situations leading to such a decision are:
Delayed possession: The home buyer has to bear the extra cost of paying the rent for the existing house in addition to the EMI burden.
Change in Interest rate: A slight increment in the interest rate pinches the household budget. In such a situation, the buyer either increases the term period of the loan or decides to sell the property.
General inflation: The rising price of commodities and daily utilities also puts a strain on the financial position of home buyers. If the salary does not keep growing at the same pace or above that of the pace of inflation then the only choice one has is to sell the property.
Investors booking profit on their property investment: A property investor in profit or in need of money, may like to sell the loaned property and book the gain. If the buyer frequently carries outs buying and selling than he is liable to pay hefty short term capital gains tax, thus left with lower amount in hand.
Overcoming the burden of the loan by selling the mortgaged property may not be a simple process. The property owner is required to discuss the issue clearly with the lending institution and lay down a plan to address the situation.
If the EMI is overdue but the remaining loan amount is manageable then the property owner can request for a loan restructuring. However, if the remaining loan amount is unmanageable then it is better to sell the property for settling the balance due.
The mortgaged property can be sold in two ways:
CASE I Selling the property along with the loan: If the buyer is ready to take the property along with the loan then the seller can enter into an agreement for sale. The buyer would now make an arrangement with his bank to directly deposit the agreed amount in the seller’s loan account. The seller can now transfer the property to the buyer and settle the loan amount with his own lending institution.
In this case if the buyer’s bank and seller’s bank are the same than the processing charges and time both can be saved. The buyer can therefore, opt for the same bank if convenient.
CASEII Selling the property without attaching loan: In this case the seller has to take a written statement from his lending bank with a declaration that the bank would return all the original documents/paper of the mortgaged property after final settlement.
Once the seller receives money from the buyer, it is deposited with the lending bank and all the original documents along with a ‘no dues’ certificate is received. The documents are provided to the buyer to complete the transaction and transfer the property.
In some cases where the buyer may not be ready to pay the complete sum in advance, the seller may need to arrange the gap in funds from other sources till he gets the full amount from the buyer.
The seller should always keep in mind about the tax implications due to a property transaction. A sale within three years would attract short-term capital gain (STCG) while that above three years would be liable for a long term capital gains tax (LTCG).
Frequent transactions by an investor to book profit can cut his margin significantly. Prepayment charges and alternative home arrangement are other factors that must be considered duly before finalising the sale of a mortgaged property.
—The author is CEO, BankBazaar.com