Re: offering a house not owned by the borrower to a bank as security for obtaining a house loan

Dear Client,

What the buyer is proposing is that before the sale transaction is fully complete and before you receive the full sale price he wants to mortgage your house to a bank to raise the shortfall amount. This means you would need to either allow the property to be mortgaged before you have received full payment, or agree to some form of arrangement where the bank's loan is disbursed simultaneously with the registration of the sale deed.

If the buyer approaches the bank and proposes to mortgage the property to raise the balance, the bank will require legal title to be established in the buyer's name first before creating a mortgage on it. This means you would need to register the sale deed transferring ownership to the buyer before you receive the remaining amount at which point the bank disburses the loan and pays you the balance.

This is a standard practice in the real estate market and is called a simultaneous registration and loan disbursement arrangement. Banks have well established procedures for this. When the buyer's bank loan is approved, the sale deed is registered, and on the same day the bank releases the funds directly to your account as the seller. This arrangement is safe for you if the bank's disbursement is made directly to you simultaneously with or immediately upon registration of the sale deed.

What you must absolutely avoid is registering the sale deed before receiving confirmation of disbursement, or relying on any informal promise of payment after registration without a concurrent bank disbursement mechanism. Insist that your advocate drafts a tripartite agreement between you, the buyer, and the buyer's bank, specifying that the sale deed registration and bank disbursement occur simultaneously on the same day, that the bank disburses the loan proceeds directly to your account, and that possession is handed over only after full payment is received.

If these safeguards are properly implemented, the arrangement is legally sound and commercially workable. I will advise you that without these safeguards, do not proceed as you risk registering away your property before receiving full payment.

I hope this helps, and if you have any further issues, do not hesitate to contact us.
 

Dear Sir,

You should insist that the purchaser approach a bank for a regular housing loan based on the proposed purchase of your property. Upon loan approval, the bank can directly release the loan amount to you, and the purchaser can contribute the balance amount from his own funds. This protects your interests because you receive the sale consideration through a recognized banking channel as part of the sale transaction itself.

Dear Client,

It would be unwise in general to consider allowing a prospective purchaser of your property to place a charge on your property in terms of an outstanding loan, until the sale is complete, and you receive the total consideration for the sale. At the point when the sale deed is signed and registered, you are the owner, and allowing the buyer to impose a charge or mortgage over your property poses great legal and financial risks to you, especially if the loan is not repaid or the entire deal does not go well. The safer way would be for the buyer to secure the required financing through a bank-secured home loan scheme, whereby the lender performs due diligence on the property and releases the proceeds directly to you upon registration of the sale. 

I hope this helps and if you have any further issues do not hesitate to contact us.