How to buy or sell a house against which loan is outstanding

6/10/2012

When Sameer Khan purchased two properties in the western suburbs of Mumbai three years ago, the idea was to generate extra rental income for his family. "I had taken loans for both flats when they were under construction. Though the properties are nearly completed, it will take another six months for the developer to give me possession," he says.

However, with the steep increase in home loan interest rates, Khan is finding it difficult to service both the loans and plans to sell one property. "The profits generated from the sale of one house can be used to pay the loan for the other," he says.

Financial insecurity is just one of the reasons aproperty owner may want to sell a house for which he is still paying the EMIs. A couple of years after buying the house, you may realise the need to upgrade to a bigger property because your needs have increased.

Some buyers also prefer shifting to a better location within the same city either because it offers better infrastructure or is closer to their workplace or their children's school. If you are moving to a different city for work, you may want to settle down there after disposing of the existing property.

While these arguments are valid for a seller of a mortgaged property, it may also make sense to buy a mortgaged resale property rather than one that is under construction. The advantage of purchasing a resale property is that it may be at a better and established location and you will be dealing with an individual instead of a builder's sales team.

"When a buyer approaches a developer, the salespersons use all kinds of pressure tactics to ensure a quick sale and the buyer doesn't get a chance to conduct due diligence," says Sandeep Sadh, chief executive officer of Mumbaiproperty.com, a Mumbai-based real estate portal. In the case of a resale property, you have ample time to examine the pros and cons of the deal before taking a decision.

Another advantage with buying a resale property is that banks generally conduct due diligence for the house that they are going to finance. "So if you are planning to buy a mortgaged property, rest assured that it has got all the necessary approvals by the relevant authorities," says Sadh.

Nanda bought a 2-BHK house in Thane, in 2009, for Rs 35 lakh. The seller had an outstanding loan of Rs 5 lakh.

How he settled the loan

Nanda made a down payment of Rs 12 lakh. The seller used a part of it to prepay the outstanding loan amount and got the original documents from the bank.

Nanda had a preapproved loan, and after registering the property in his name, he got the loan processed in 10 days to pay the remaining amount.
"I got a good deal on the property as the seller was in a hurry and was not finding enough buyers because of the outstanding loan."

While the reasons for selling and buying a mortgaged property may vary, one common problem that most people face is the lack of clarity on how to buy or sell a property that is mortgaged to the bank. Can you sell a mortgaged property at all? Do you need to settle the home loan first and then approach a buyer or can the buyer take over your loan? What if the buyer himself plans to take a loan to fund the purchase?

Many property owners who have bought the house with money borrowed from a bank have grappled with these questions. "I still have to repay a sizeable portion of the principal back to the bank before I can get the original papers," says Khan, whose house is mortgaged with a leading public sector bank.

Khan plans to sell his 2-BHK house at Goregaon, for which he has an outstanding loan of Rs 19 lakh. He has purchased another house through a bank loan and is finding it difficult to process both. So, he has decided to sell one.

How he plans to settle the loan

The potential buyer has agreed to pay him a lump sum. Once the original documents are released by Khan's bank, the buyer will apply for a housing loan when the documents are cleared by his bank.
"I have a copy of all the original property documents. The potential buyer can get it verified with the bank as well."

Reliance Capital gets RBI nod for mutual fund business stake sale

NEW DELHI: The Reserve Bank of India has approved Anil Ambani-led Reliance Group's Rs 1,450 crore stake sale in its mutual fund business unit to Japan's Nippon Life.

The diversified conglomerate's financial services arm Reliance Capital is selling 26 per cent stake in RCAM (Reliance Capital Asset Management Company) to Nippon Life for Rs 1,450 crore - making it the largest ever Foreign Direct Investment (FDI) in the Indian mutual fund space.

Sources said that RBI has cleared the deal, bringing it a step closer towards its completion. The transaction has already been cleared by the Competition Commission of India (CCI) and might be completed soon after achieving a couple of more remaining regulatory approvals, they added.

"We have no objection to your company transferring 26 per cent of the issued and paid-up equity shares in RCAM to Nippon Life," RBI communicated to the company in a letter dated June 7, 2012.

The Nippon Life transaction values RCAM, the country's most profitable fund house, at about Rs 5,600 crore.

The final agreements for this deal was signed in late March this year.

Reliance Capital has already completed another deal with Nippon Life, wherein the Japanese financial services giant has acquired 26 per cent stake in Reliance Life Insurance for Rs 3,100 crore, valuing the life insurance venture at about Rs 11,500 crore.

For the last fiscal ended March 31, 2012, RCAM posted a net profit of Rs 276 crore, retaining its position as the country's most profitable fund house for the second year.

The company's profit after tax grew by over five per cent from Rs 261 crore in the previous fiscal 2011-12. Its profit before tax also grew by five per cent to Rs 308 crore in the fiscal ended March 31, 2012.

Reliance Capital AMC (Asset Management Company) had overtaken HDFC AMC as the country's most profitable fund house during the previous fiscal 2010-11 and has managed to retain its leadership position.

Reliance Capital Asset Management managed Rs 1,40,853 crore ($27.5 billion) as on March 31, 2012, across mutual funds, pension funds, managed accounts and hedge funds.

Reliance Mutual Fund figures among the top two mutual funds in India, in terms of AUM, with market share of nearly 12 per cent and its average AUM stood at Rs 78,112 crore for the period ended March 31, 2012.

Summer sale on in global jet industry; airline bosses to meet in Beijing and discuss deals

BEIJING: A summer battle for orders is underway in the global jet industry, which gathers in Beijing on Sunday for the first of two crucial events in two months, pitting the world's largest planemakers against each other in a race for deals worth $50 billion at catalogue prices.

The potential deals span all continents and every pattern of powered flight from the largest airliners to warplanes and luxury business jets, shielding aerospace workers from the worst effects of a slowdown spreading from Europe's debt crisis.

But analysts say Airbus and Boeing are having to offer sporadically hefty discounts to ride out economic uncertainty, especially for maturing models or early batches of new ones like the 787 Dreamliner.

Boeing is expected to win the fiercely contested annual order race for the first time since 2006 as it catches up with a decision by Airbus to revamp medium-haul jets, resulting in big fuel savings for airlines on the Airbus A320 and Boeing 737.

The dominant civil planemakers are also positioning themselves early ahead of next month's Farnborough air show, with deals worth $14 billion announced in the past 72 hours.

Both companies have accused each other of waging a price war to win hundreds of orders for the revamped A320neo and 737 MAX respectively, and deny cutting corners themselves. Several industry analysts say pricing is under pressure this year.

"Both sides are heavily discounting," said Richard Aboulafia, aerospace analyst at US-based Teal Group.

Although the madeover medium-haul jets offer airlines a reduction of 15 per cent in fuel, the industry's highest cost, most carriers remain under financial pressure and some are delaying deliveries to shore up their cash positions.

Airlines meeting in Beijing are expected to hear that their industry body, the International Air Transport Association (IATA), has left its forecast for 2012 sector profit unchanged at $3 billion, but unease is growing as Europe discusses a new bailout and China's economy slows.

Major characters in the aerospace industry are in the Chinese capital negotiating on the sidelines of IATA's Beijing summit, which comes weeks before another showcase, the July 9-15 Farnborough air show in Britain.

Chicago-based Boeing was relegated to the background during most of last year's equivalent event as Airbus broke records with sales of the A320neo, but later opted for a similar upgrade.

This year will be different. Boeing is preparing to hit back with a spree that could soon include an order from United Continental for 100 narrowbody jets plus some 70 options, industry sources said.

It will want to persuade the top five aircraft leasing companies led by AIG unit ILFC to put firm signatures on undisclosed draft orders that US aerospace analyst Scott Hamilton estimates at 300-400 jets. These will include an order from GECAS, whose General Electric makes 737 engines.

Obama says private sector is fine — see the charts

During a press conference Friday, President Barack Obama said the private sector “is doing fine,” a comment that drew immediate scorn from conservatives. (Read our story) House Speaker John Boehner, an Ohio Republican, replied the private sector is “not doing well,” and Republican presidential rival Mitt Romney said the remarks show Obama is out of touch. Obama himself later offered a clarification to reporters, saying the economy is “not fine.” In any case, the data on the private sector — what MarketWatch interprets to mean “business” — offers multiple interpretations. Here are the charts of the relevant statistics.