Home loan frauds may become a thing of the past with the country moving closer to a central registry for equitable mortgages. Once a central registry is in place, it would be virtually impossible for a borrower to raise loans twice against the same property or raise loans using forged documents.
According to finance ministry sources, the union Budget is likely to contain a mention of the central registry. In response to the government’s proposal, the Indian Banks’ Association has submitted a feasibility report on a central registry to the government. Sources said commercial banks will set up a company under Section 25 of Companies Act 1956 — a non-profit company.In the past, there have been instances where borrowers have forged the title deed and borrowed money from multiple banks by giving duplicate documents (title deed) as security for home loan. As a result, when the borrower defaults on the loan, many banks would make claim for the same house.
Here even as the value of the house may be, say, Rs 30 lakh, the borrower would have raised multiples of that amount. Secondly, there have been instances where the builder has sold the same flat, while it is under construction, to multiple parties by forging the documents.
It is estimated that the banking sector has reported over to Rs 400-crore home loan frauds. These issues could be well tackled once a registry is formed. Under the proposed system, all banks and housing finance companies will provide data on title deed and the home loans borrower to the central registry. Next time, a bank processes a home loan proposal, it will first verify with the central registry if the title deed is clear and not registered in any other entity’s name, or if any other bank has taken it as a security.
As of now, the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interests (SARFAESI) Act in India has enabled provision to set up a central registry. Thus, the government will have to issue a notification which will be the first step to the formation of the registry.
“However, the biggest challenge is that of setting up a system, whereby each plot of land and structure thereon is verifiable and can be identified separate. This is a required co-ordinated effort of the central and state government,” points out MR Umarji, chief legal advisor to IBA and former executive director of RBI.
The central registry for equitable mortgages will cover only those properties against which an individual or an entity has taken loan. In its report to the government, IBA has proposed that initially the company will register immovable items like title deeds of properties and subsequently, it could look at movable items like plan and machinery. IBA has also said while banks will have the ownership for central registry, the government will have to appoint a registrar as chief operating person to run the company.