What Is an "Encumbrance"?

Any legal or financial charge on any property, such as:

•  Home loans or mortgages

•  Property-based loans.

•  The legal conflicts involving ownership.

•  Court attachments

•  Registered lease agreement

If a property has an active mortgage, it will appear in the EC.

Why Is the EC Important?

For Buyers:

•  Secures the property against default loans.

•  Records the history of transfer of ownership.

•  Reduces fraud risk

•  Home loan approval requirements

For Sellers:

•  Demonstrates a clear title

•  Builds buyer trust

EC is also needed by banks before they grant home loans.

Types of Encumbrance Certificate

 Form 15 (Encumbrance Found)

Published in situations where the property has undergone some transactions or liabilities within the given year. It lists:

• Sale deeds

• Mortgage details

• Lease agreements

• Gift deeds

 Form 16 (Nil Encumbrance Certificate)

Issued in cases where no registered transactions and liabilities are discovered in the course of the period. Refers to the period that the property is not subject to registered encumbrances.

What Period Should You Check?

Buyers normally demand EC of:

• Less than 13 years (common bank requirement)

• Or 20-30 years to be fully vetted

The longer the period is, the more secure the verification.

How to Apply for EC?

You can obtain EC:

•  With the help of the Sub-Registrar's Office.

•  Through online portals of the state government (in most states)

•  Through a legal consultant

Required details:

• Property address

• Survey number

• Owner name

• Time period requested

What Does EC Show?

An EC typically includes:

• Names of property owners

• Character of business (sale, mortgage, gift, etc.)

• Document number

• Registration date

• Loan details (if any)

It offers transparency of transactions.

What EC Does NOT Show

Important limitation:

EC just records registered transactions.

It does NOT show:

•  Unregistered agreements

•  Pending property tax dues

•  Family disputes that are not registered.

•  Oral claims

•  Illegal possession issues

Therefore, EC in itself is not a complete due diligence.

EC in Loan Closure Cases

On the assumption that a loan had been borrowed and paid off:

• The bank shall have to lodge a Release Deed

• Loan closure should be reflected in the updated EC

Ever confirm renewed EC following the repayment of loans?

Common Mistakes Buyers Make

•  Examining EC briefly only.

•  Failing to verify the number of surveys

•  EC is an assumption of a clear title

•  Disregarding disparities in the names of owners

EC belongs to verification, not the only document needed.

Paperwork to Review in the EC

•  Sale deed chain

• Title deed

•  Property tax receipts

•  Approved building plan

•  Completion/ Occupancy certificate (where necessary)

Full legal due diligence is required.

Final Thoughts

An Encumbrance Certificate is a legal document that is very important in the dealings of property. It establishes the existence of registered financial or legal liabilities of a property. However, it should be used as one filter, not the ultimate determination of evident ownership.

Ahead of buying a property, it is always:

•  Check EC within an adequate time.

•  Checks and balances ownership history.

•  Consult a property lawyer.

Prevention in real estate is always far more preferable to cure it later on in a legal manner.