What exactly is Encumbrance?
Let us take the example of Mr. Kumar who currently owns a piece of land in Bangalore. He wishes to construct a house on this land and applies for a bank loan for the funds to move forward with the construction. The bank decides to grant him the loan based on the land Mr. Kumar owns as collateral for the loan. Due to the fact that Mr. Kumar owes the bank money, the bank now has a “claim” on this land. This claim means that the land is no longer owned by Mr. Kumar in a free and clear manner. This “claim” on property is referred to as an Encumbrance.
Why is learning about Encumbrances on a property important?
Now in the example above, after Mr. Kumar is done constructing the house, let us say that you are buyer interested in Mr. Kumar’s property. If you purchase the property which has outstanding encumbrances on it, you inherit the encumbrance. This means that the bank can legally force a sale of the property you purchased to fulfill the debt that it is still owed.
How can I find out about the Encumbrances on a property in Bangalore?
In order to minimize situations where buyers end up in the sort of situation above, banks register their claims with the Sub-Registrar’s Office. Information about encumbrances on a property can be obtained by filling out Form 22.
What is a No Encumbrance Certificate or a Nil Encumbrance Certificate in Bangalore?
When you request encumbrance information for a property from the Sub-Registrar’s Office, you have to indicate the specific years that you want the Sub-Registrar’s Office to look into to determine encumbrances. If no transactions are found that are applicable for the specified years, the Sub-Registrar’s office issues a document called “Form 16″ which is also known as the “No Encumbrance Certificate” or the “Nil Encumbrance Certificate”.