1) In order to ensure that the sale deed continues to be legally valid and binding on the parties
a) the builder has to obtain a No Objection certificate cum Registered Release deed by the bank to which the property is mortgaged and
b) The builder and yourself should execute a registered ratification deed, incorporating the details of NOC and Registered Release deed.
2) The builder had the right of redemption at the time of mortgaging the property had a right vested with him called Right of Redemption by virtue of Section 60 of the Transfer of Property Act, 1882. Right of Redemption is a right which makes mortgagor(builder) the owner of the property mortgaged, and makes him able get his property back from the mortgagee (bank) on paying the amount borrowed from him. However since the Builder has sold the flat to you, the builder has lost the right of redemption and instead you will have the right of redemption. So , even if the builder get a NOC and a release deed from the bank, he will not have the right of redemption anymore and instead you will now have the rights of ownership , title and possession of the said flat.
3) The correct procedure is to obtain a NOC from the bank and also the bank has to execute a registered release deed to state that the property is free from its mortgage/lien.
4) Actually the builder is also liable for criminal prosecution u/s 420(cheating) and 406 Criminal Breach of Trust R/W 120 of Indian Penal Code as he has with criminal intention suppressed the facts of mortgage to the bank and proceeded with registration of property. So it is in his interest to ensure that he obtains NOC and executes the registered release deed with the bank and also a rectification deed jointly with your goodself.
Hope this information is useful.