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Gaurav Srivastava | 13 Feb 2023

How to Sell a Real Estate in Chennai that is on Loan?

How to Sell a Real Estate in Chennai that is on Loan?

No matter whether the property is on loan or not, selling property in Chennai is a tedious task, and if the property is under the mortgage, it becomes even more challenging. People usually face difficulties in disposing of a property that is on loan, but have you ever wondered why they wish to sell a property on loan? There could be many reasons why a seller would like to sell the property either they need to upgrade to a better location or bigger place, due to financial constraints, relocation to a different city, etc. 

Home sellers usually find themselves baffled with multiple questions on how to go about disposing of a real estate that is on loan since it involves a third party. Hence, you as a seller must always be careful to look into various factors and adopt a different approach. The initial step is to inform the home buyer of the outstanding loan on your property in Chennai even before negotiating a final sales price. 

So, let’s read further and understand everything about selling a property in Chennai that is on loan! We’ll first start with the list of documents required while selling a property that is on loan.

List of Documents Required for Selling a House on Loan

As you are on the journey of selling a home that is on loan, all the original documents of the real estate would have been submitted to the bank, right? Well, in this case, the photocopies of the necessary documents stated below are required to be able to proceed further with the sale of the property that is on loan:

1. Sale deed and Mother deed

2. Electricity bills

3. Encumbrance certificate

4. Property tax receipts

5. Society NOC

6. Loan-related documents

Also Read: Home Sellers Guide

Tax Implications

Along with the real estate specification, the main factor to think over is the tax implications on the sale of the property. CGT, i.e., Capital Gains Tax, either long term or short term, is applicable under the Income Tax Act 1961. Hence, it has been recommended to avoid selling your home within one year of purchase except in the contingency to be able to evade higher tax implications.

These taxes can be mitigated in the following ways:

1. If the real estate is sold within 2 years of purchase, STCG, i.e., Short Term Capital Gains tax, has to be paid on the products earned from the sale of the property. The percentage of the STCG is restricted from 10% to 37% on the basis of your income and the tax bracket you fall under. Despite that, these tax deductions can be mitigated if the home seller buys another property or house from this money within 2 years. So, it is always better to avoid selling a property within 2 years of its purchase since you will then have to pay a higher amount of tax. 

2. If the real estate is sold after 2 years of purchase, LTCG, i.e., Long Term Capital Gains taxes, are applicable on the profits earned by selling the property and is capped at 20% on the basis of your income. But in case the seller decides to invest the money in purchasing a house, you can then save on the tax deductions under Section 54 of the Income Tax Act 1961. One thing to note here is that the exemption is limited only to the capital gains on the sale and not the entire amount paid to buy a new property. The new property can either be bought one year before the sale of the property or two years after the sale. 

Now, let’s look at various approaches to selling a mortgaged property in Chennai!

Different Approaches to Sell a Mortgaged Property 

On the basis of the paying capacity of the buyer, below-mentioned are a few scenarios:

Scenario 1: If the buyer decided to pay with his own savings or funds

From the seller’s point of view, this could be an ideal and straightforward situation. Initially, the seller would have to get a letter from the bank or financial institution agreeing to hand over all the original documents of the mortgaged property after paying the entire outstanding loan amount. The buyer would then be required to pay the outstanding loan amount to the loan account of the seller. After this, the bank will start the process of releasing all property-related documents. Here, the time duration given to the seller to make this payment must be worked out directly with the bank.

If the buyer does not transfer the money to the bak on a specified date, the bank can charge a penalty apart from the principal outstanding amount. The entire process of releasing all the original property-related documents from the bank, along with the “no due” letter, takes nearly 5-10 working days. Once the documents are released, the seller can transfer the property to the new buyer, who then remits the remaining amount to him/her.

Also Read: Stamp Duty and Registration Charges in Chennai

Scenario 2: If the buyer decides to go for a loan with the bank or lender of the seller

The entire process will be pretty quick in this scenario since the bank already possesses all the property-related details and information. Here, the bank will just have to verify and check the loan eligibility of the buyer based on his/her payback capacity. Then, all the three parties involved, i.e., bank, buyer, and seller, will sign a tripartite agreement. The bank or financial institution will then release the amount required to settle down the loan of the seller, and the remaining amount is handed over to the buyer so that he/she can make the final settlement to the home seller. The buyer has to incur a processing fee in this situation as the buyer is now considered the new home loan applicant. 

Scenario 3: If the buyer decides to go for a loan from a different lender or bank 

If the buyer decides to go for a home loan from a bank or lender different from that of the seller, the buyer would have to obtain all the required property-related documents from the seller’s bank. In addition to the property-related documents, the buyer must obtain a letter from the bank of the seller stating his/her outstanding loan amount. Once the seller’s bank hands over all the documents, the buyer can then submit them all at his/her lending bank or financial institution. After thorough scrutiny of the documents, the bank of the buyer will release only the outstanding loan amount to the seller’s bank. Once it’s done, the seller’s bank will release all the original property documents. Upon handing over all the documents to the bank of the buyer, the buyer will receive the remaining loan amount, which has to be paid to the seller for the final transfer of property ownership. 

That’s all on how you can dispose of a property in Chennai that is on loan! There are a few benefits of selling a property already on loan. The financial institutions or banks generally conduct due diligence for the property they are offering loans for. So, the buyer will have the advantage of having all the required approvals and the legality of all documents already verified by banks. Also, the mortgaged properties are sold at a much lower price when compared to the new ones. 

Also Read: Best Banks to get Home Loan in 2022


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