Real Estate Property is one of the most sort-after investment options in India. The growth in disposable income, demographic changes such as the growing number of nuclear families, a rise in double income earning families, higher income levels within the urban population, the access and availability of bank finance (Loans) are driving the housing demand in India.
Furthermore, attractive tax advantages for housing loans make them ideal vehicles for tax planning.
So, to realize a long cherished dream of owning a property, many of us would like to take Mortgage Finance route. In most of the cases, financing happens through banks/lending institutions and in few cases, it can happen through the loans taken from relatives/friends and by keeping the property as a collateral.
(What is Mortgage? – a legal agreement by which a bank, building society, etc. lends money at interest in exchange for taking title of the debtor’s property, with the condition that the conveyance of title becomes void upon the payment of the debt.)
Let’s now consider a scenario – Mr Salman has acquired a property through a home loan. He bought this Flat when he was single. He is now a married person and would like to gift 50% ownership share in the property to his spouse. Is this possible? Can he gift a mortgaged property to his wife?
Another scenario can be – Mr Laloo has a big bungalow in his name. He has a mortgage loan on this property. He meets an untimely demise. Can his legal-heirs inherit this property which is mortgaged?
Can a mortgaged property be gifted / inherited / willed?
Given the high capital values of properties, most are bought with the help of home loans. So, what happens if you inherit/gift a property that has an outstanding home loan?
As per Section 128 of the Transfer of Property Act, a donor can gift a mortgaged property. However, the donee (receiver of the gift) is personally liable for all the debts and liabilities that are associated with that property.
When you take a home loan, your lender/banker creates a Mortgage Lien on the property. A mortgage lien is a form of conditional ownership of your property claimed by your home loan provider. A lien is the legal right of a creditor to sell the collateral property of a debtor who fails to meet the obligations of a loan contract.
So, ideally when you are gifting a mortgaged property, you have to intimate your Lender about your decision and take their consent. If you take a written consent from your lender then Gift becomes a valid one.
In case, you do not take consent from your lender then this may lead to a legal litigation. Gift Deed executed by you can then be revoked through court of law by your lender.
Kindly remember the below points;
- A mortgaged property can be gifted after redemption of mortgage. You can clear the outstanding loan dues and can gift the property without any hassle.
- In case, you gift/Will a mortgaged property, the donee besides accepting the Gift, also has to accept the burden/obligation of mortgage. The property can be gifted but benefit of mortgage may accrue only on release of property from mortgage, when the debt liability is extinguished. The mortgagor needs to be intimated on this.
- The above point holds true even in the cases of inherited properties. The mortgaged property can be transferred/inherited only with the written consent of the lender.
- This means that if a person passes away while the home loan was still running on the property that has to be bequeathed, the beneficiary (spouse, or children of the deceased) will have to pay the outstanding loan.
- However, if home loan insurance (mortgage insurance) was taken, the insurer pays the outstanding loan to the lender. In such cases, once the payment is made by the insurer, you must collect the loan clearance certificate from the lender and the original documents of the property that were given to the lender to avail the loan.
- Once this is done, you can then get the mutation of property done in your name.
- Besides the liabilities, the donee (receiver of gift) or the inheritor is also obliged to adhere to the lease/rental agreement (if any) signed between the lessee (the predecessor) and the lessor.
Continue reading related articles ;
- Options for adding Spouse’s name as co-owner to the Property
- 5 ways of transferring your Immovable (or) Real Estate Property (Types of Deeds)
- Sale of Inherited (or) Gifted Property & Tax implications on Capital Gains
- Got a Gift? Find out, if it is Taxable or Tax-free?
- Nominee Vs Legal Heir : Who will inherit (or) own your Assets? | Importance of WILL
(Image courtesy of Stuart Miles at FreeDigitalPhotos.net)
(Post first published on 26-June-2018)