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  • Category: Miscellaneous

    What may be criteria for sanctioning housing loans by banks ? Repaying capacity or asset worth ?

    One of my friend offered his house for sale and one customer got ready to buy the same. Every thing got agreed and he was having pre-sanction loan from a reputed North India bank. But there was some hitch in document and that is very minor. If the bank is local, they would over see that minor mistake and give the loan. So at the last minute the loan was denied. My question is that the customer never approached that bank for loan. They volunteered to give seeing his credit worthiness in the market, then how come they deny loan citing minor reasons ?
  • #613932
    Banks and other financial institutions take into account many factors before a loan is sanctioned.

    In your friend's case, the bank had already offered him a pre-sanction, which indicates that his credit history was good.

    The denial of loan appears to be based on the property documents. Since the property is mortgaged with the bank; the property must have a clear title. While processing the loan, the bank looks at all the documents pertaining to the property, including the land documents, legal documents, plan and approvals and whether the property is built on land with a clear title etc. If there are legal problems present in any of the property documents the bank will not sanction the loan because there could be litigations later on. In legal parlance, there is nothing like 'minor mistake'. The bank wants to safeguard its interest and the bank's legal team would have perceived the 'minor mistake' as a problem.

    "A love affair with knowledge will never end in heartbreak." -Michael Garrett Marino

  • #613936
    When the pre sanction loan was against his credit worthiness, then why the bank should bother about property being purchased ?
    K Mohan
    'Idhuvum Kadandhu Pogum "
    Even this challenging situation would ease

  • #613948
    No Mohan. The first and the foremost criteria for the bank is the legality of the documents. The bank will keep the documents with them and if the loan is not repaid they will sell the property and take their money. In such case, if the papers are not proper bank can't take the action of auctioning the property, The pre-loan sanction indicates that your friend's credit rating is good and he is having to repay capacity. But today's position is this. But tomorrow what happen's nobody knows. Hence they keep the documents as a security for them. The Banks will see the following three points before they sanction the loan. The first point is the accuracy of the documents. After that, they will see the repaying capacity of the person and finally the worth of the property. If there is any problem in any one of the three also, there is no scope for the sanction of loan. There is no relation between pre-loan sanction and finally sanctioning the loan.
    always confident

  • #613949
    Pre-sanction does not mean the bank will bend its rules or disregard the requirements. Please understand that the property papers are screened before every loan. The property would have been the collateral against which the loan would have been given. This would be mandatory if the loan amount was more than the pre-sanctioned amount.

    Also, know that pre-sanctioned loans or pre-approved loans are marketing strategies, to get clients. Banks follow all the laid down procedures, especially for huge sums and to check the authenticity of the collateral.

    In your friend's case, the documents had an error. When an error has been identified how can it be ignored? It could have major implications. At the end of the day, the officer sanctioning the loan is responsible. Why should he risk his job for someone?

    If the house is an apartment, then I suggest you go to the builder and ask for a clarification. Their legal team would have a solution. If it is an individual house then the owner must get the error rectified, if that is possible.

    "A love affair with knowledge will never end in heartbreak." -Michael Garrett Marino

  • #613951

    They not only keep the documents, but the property is also transferred in the name of the bank. And it is officially registered and remains the bank's property, until such time that the loan is paid. The bank auctions the property if there is repeated default in the loan payment.

    "A love affair with knowledge will never end in heartbreak." -Michael Garrett Marino

  • #613971
    Pre-sanction offer is just a preliminary 'on-the-face -of -it' general intimation. It is subject to compliance of certain important and 'must' conditions. The pre-sanction paper may mostly say that it should not be taken as the sanction and does not invest any right or claim for loan.
    As for housing loan, the asset to be purchased with the loan is the house . Hence the documents should be legally clear and free from any dues and liabilities. In case the legal opinion does not give clearance, the bank cannot take it as security., and if so cannot give housing loan for that.

    If the defects are minor and can be rectified, then they ask the person to get it rectified within a reasonable time frame and revert to the matter. if they are serious, then they reject the loan.

  • #613983
    There would have been no issues if not for the current NPA or it would have been easier if your friend was a powerful baron. we live in an apartment and have a mother deed that goes back to many years and around 500 pages. Even then the lawyer/property assessor from the bank came down and asked for some more documents and we had to speak to some of the older owners who gladly had the similar issues and we could get the copies in time.
    The others have rightly said, the banks will never take any risk post NPA again and burn their fingers especially if there is a documentary lack or error.

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