1) the practise adopted by builders and bank is as and when flat is sold sale consideration goes into escrow account and bank releases the flat to the purchaser

2) builder pays off loan taken from builder from sale consideration of flats

3) bank will not grant any loan to builder for construction purpose unless land and constructed flats are mortgaged to it

4) it is a win - win situation for builder bank and flat purchaser as project would not get delayed for scarcity of funds

5) there are sufficient safeguards built in the agreement that builder does not siphon of funds

6) in the event builder defaults in payment of loan purchaser of flat won't lose their hard earned money as flat has been released by the bank on receipt of sale consideration

7) don't cancel booking if you are buying flat from reputed builder

1. The mortgage has to be cleared before the execution of sale deed in favour of the prospective buyer. If the mortgage is in existence then the sale deed cannot be executed in favour of buyer except with the consent of the mortgagee. Needless to add, such transactions are likely to run into rough waters and result in a defective title to the buyer. Be that as it may, no crime is committed except if the developer enters into sale agreement by misrepresentation of actual facts.

2. If the developer defaults then bank can sell the property at a throwaway price to recover the loan.

3. If the sale agreement was signed due to concealment of facts then it can be cancelled and a criminal complaint for cheating lodged.

4. PIL is not maintainable.

Hi

Normally the builder's mortgage the land and entire saleable area to the bank for financing the project.

As and when there is a buyer there will be a tri-partiate agreement between the buyer, the bank and the builder. Once the sale agreement is done, the buyer will be getting a property from any lien or mortgage held by the bank which has financed the builder. Typically in such tri-partiate agreements, banks will release money only to the builder only when a particular phase of project is complete.

The Real Estate (Regulation and Development) Bill 2016 which has now been passed by parliament and assented to by the President, precisely addresses all the concerns you have raised in your query.

The Bill seeks to protect the interest of the home buyers by enhancing transparency and fixing the accountability of developers, brokers and consumers.

No longer can the builder run away taking money sanctioned by the banker and the banker also unlike earlier times cannot disburse money in full and wait for the builder to complete his commitments. moreso in case of buyers, they do not need to be apprehensive of making payment and waiting for builder to deliver the property as per his whims and fancies.

With the new law, the buyer, builder and banker have well defined responsibilities and there is also a monitoring and penalty mechanism in place that will act as a deterrent to all players.

so no need to worry henceforth.

1. It is a fraudulent act on the part of your developer. Mortgaged property can not be dealt with by the mortgagor in any way. The ideal procedure in such case is that the lending Bank issues NOC to the buyer for his buying the flat which has already been mortgaged by the developer with the said Bank and the buyer pays the consideration to the account of the developer lying with the said lending Bank,

2. The fate of the people buying the said mortgaged property will be fatal. The Bank will take possession of the flats by initiating SARFAESI Proceeding and recover its dues by selling the flats to the Bank's buyers,

3. Ask the builder to get NOC from the Bank. You also visit the Bank and negotiate with them. If the developer does not agree, ask for the refund. If he refuses to refund, file a consumer complaint before your local District Consumer Dispute Redressal Forum alleging deficiency in service and unfair business practice and claiming refund of the amount paid by you with interest, damage and cost. You can also file a criminal case against him for cheating you,

4. You are not an investor here. You are a consumer as per Consumer Protection (Amendment) Act,2002.

1> Is the sale of flats on mortgaged land and mortgaged saleable area legal? If not under what charges or act can the builder be booked?

First of all whether the builder is the owner of the property or how did and in what capacity did he mortgage the property to the Bank and what is the purpose of mortgage?

A mortgaged property cannot be sold to a third party before discharge of the mortgage loan. This is nothing but an act of cheating. The bank if takes over the property on mortgage due to default in repayment, then the purchasers will be literally on streets, exercise caution before entering into an agreement.

2> In case the builder defaults on loan to bank and debenture trustee what will be the fate of people who bought the flat?

Read my above answer to this question.

3> Will you advice to cancel this flat? If we cancel the flat and builder does not refund the money(very much common nowadays) what charges can be framed against builder?

If the builder is not returning the deposit amount, you may book him under criminal law for cheating and breach of trust.

4> Can we raise this issue with goverment to safeguard the interest of small retail investors and stop this practice? Can a PIL be filled in supreme court?

The affected parties can gather together and fight against such social evils and mass frauds.