Don’t agree to mortgage of land
there are many cases wherein builder after having mortgaged land has siphoned of funds and not completed construction within stipulated period
builder has to make his own arrangements for funds
mortaging land in JV
We have entered into a JV with a reputed builder in odisha for construction of flats. all permission have been granted and work is going on well, so far there has been no issues with builder and we have got our allotment as per JVA now builder wants us to give consent for mortgaging land to take a construction linked loan with the land as mortgage . we had given him POA for construction etc but we had also inserted a clause in JVA saying that landowner will not / shall not in future mortgage land or any portion of it either to builder or any one else, builder is now saying he needs money to expedite the construction, he is ready to offer some collateral for us but they are in another under constructed property..... and do not reflect the value of the flats that ha sbeen alloted to us pl advise what should we do ?
Asked 1 year ago in Property Law
Religion: Hindu
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10 Answers
is this a normal practice? also can one sell flats as long as the land is mortgaged for construction linked loan ? is builder liable for paying loan as loan is in his name and company or will be also liable if we do agree, what should be the collateral what happens if he defaults?
Asked 1 year ago
1) It depends upon builder financial position
2) reputed builders with deep pockets do not mortgage land
3) builder is responsible for repayment of loan
4) there would be clause in loan agreement that sale proceeds of flats would have to be deposited in escrow account for repayment of loan
Construction linked plans have been a disaster in most cases as builders do not honour their side of the agreements.
The builder is trying to finance for your property while he diverts his money elsewhere. Moreover it goes against the very agreement which you had with the builder.
In a construction linked plan if the builder doesn't deliver the party stops payment and then can file cases against him and you would obviously be a party.
Since the JVA clauses have restricted the builder to mortgage the property in any manner either now or in future, you may better not agree or accede to trhe request made by the builder in this regard.
He has to honor the conditions of the agreement already entered with you.
it is not your problem that he is facing financial constraints, let him look for finances through his own sources.
What if the builder after taking mortgage loan is vanishing from the spot leaving the construction incomplete and also without making any arrangement for repaying the mortgage loan, then your property may be brought to auction for default in repayment done by the builder.
This is not the normal practice.
The builder has not disclosed these issues at the time of singing the agreement, the act of seeking permission to mortgage loan is just to finance for his other projects which is not your problem.
In case the builder defaults in repayment then the land mortgaged may be brought to auction sale by the lender bank.
There is no obligation on you to agree for the conditions which are not available in the agreement.
It's better to go with him in separate supplemtary agreement on this issue but only after taking collateral as mortgage will release your rights on the land if not paid by builder
your share of flats in the project have already been allotted to you
so i do not see any harm if you give noc to builder to mortgage the land for getting a loan
however than loan must not affect the flats which have been allotted to you. that you need to ensure by stating that in your noc. he can mortgage the land and structures so far built thereon however excluding your share
ultimately the land will be conveyed by the builder to the society of flat purchasers
you already have got benefit from your land in the form of new flats which it appears from your query have been allotted to you
in your noc you also have to insert a clause that in case of default in repaying the loan if the bank takes any action for enforcing its security then builder will protect and indemnify you. this is because the land still stands in your name.
if the builder is giving security/collateral in the form of other property then that would be conducive to you. however you need to ensure that the market value of that property covers the loan amount
Dear client, in my kind opinion do not agree to this condition as there has been number of cases where the builder this did not complete the construction within stipulated period
Moreover, reputed builders with deep pockets do not mortgage land and they are responsible for repayment of loan
For any builder to take a loan for construction of flats, the underlying land has to be mortgaged, it being the primary security. As and when flats are constructed and sold, the builder has to repay the loan and get the proportionate share of land released by the lender. This is the actual practice. The loan agreement needs to be perused for proper advice. Beware that in any case of default, the lender has every right to sell the mortgaged land to realize the dues under the Sarfaesi Act.
