Deal Closure

Doing proper legal due diligence before deal closure forms the most critical aspect of your home buying process as you put your life savings into it. Legal due diligence is a process by which you can minimize the legal risks associated with a real estate transaction. Neglecting anything in this aspect can lead you into unnecessary litigation or property dispute. It might also lead to losing your ownership rights or paying hefty penalties. Real estate transactions are legally sensitive matters. The true value of your real estate transaction or investment is realized only when you take into account the legal risks associated it.
As a responsible home buyer, you should not proceed for home deal closure with the builders/agents without conducting a proper legal due diligence on the property of interest. You will need the help of a lawyer or a legal expert to perform your due diligence. You should ask your lawyer to create the draft agreement between you and the builder.
You need to follow a comprehensive checklist of steps necessary to complete your legal due diligence process before home deal closure is done. First of all, you need to arrange for the chains of deeds/title. You have to make sure that all the historical transfers of the land title are in order and that there is no missing link. Your lawyer will conduct searches in the Registrar Office and courts to be sure about the land. You should establish the successive transfer of land ownership since the past 30 years.
After the chain of deeds, you can check on the Intimation of Disapproval (IOD) certificate. An IOD is an authorization certificate issued by the local municipal body once the builder has obtained all the required No Objection Certificates (NOCs) from various departments and government authorities. There are about 40 IOD conditions to be met. The final approval is to build the Commencement Certificate, which is given when all the NOCs are obtained and IOD conditions are met.
The third document that should be on your checklist of due diligence is the Completion Certificate (CC). CC is a certificate from the municipal body that confirms the completion of the building in accordance with the building standards and originally approved plan. You should ask for the CC from the builder once the deadline for the completion as mentioned in the Sale Agreement is over.
Occupancy Certificate (OC) is a crucial certificate issued by the local municipal bodies once the developer submits all the necessary clearance such as electricity, water, fire, and sewerage. OC is the permission to occupy the building for the purpose of living. You cannot legally occupy your unit for living until and unless the builder has the OC for the same.

Once the building is ready for occupation as notified by the builder, you need to check if you are getting what was promised during the start of the project. You need to ensure that you are getting all the facilities as committed by the builder. If you come across any irregularities with the delivery of the project or with the documentation, you should raise this concern to the builder. If your issues are not solved by the builder, you can approach your Real Estate Regulatory Authority to get a quick solution.

Your checklist before possession should be classified into two categories: Project Delivery and Legal Documentation.

When it comes to Project Delivery, you need to look into various aspects. These factors include final layout, built quality, fittings in the kitchen and bathroom, the quality of paint used, amenities such as swimming pool, gym and park provided as promised, electric connections, common facilities such as lifts, flooring, and drainage. You need to ensure that the final layout is according to what was originally planned in the project brochure. You need to measure all the dimensions of the hall, kitchen, balconies, and bedrooms in order to verify the same. You need to check if the building is built without any cracks on the walls and that the construction is done as per the building standards and safety norms. You need to ensure if the latches and doorknobs are working smoothly and that the door and windows are placed properly as mentioned in the original plan. You need to check if the fittings in the kitchen and bathroom are done properly with respect to quality and brand as mentioned in the sales agreements. You must verify the quality of paint applied on the walls, wooden surfaces, doors, and roofing sheets. It is important for you to assure that the paint used is of a reliable brand and has been applied as per the manufacturer’s recommendations.

There are various documents involved in Legal Documentation. These include Encumbrance Certificate, Khata/Patta (Certificate/Extract), Sale Deed, Allotment Letter, Possession Certificate Copy, Tripartite Agreement, Maintenance Service Agreements, No Dues Certificate and Joint Development Agreement. These documents are of utmost importance to determine the legal authenticity and credibility of the property.

Assessment of Your Financial Situation

Before opting for a home loan it is essential to determine how much down payment you can make and how much amount you can afford towards payment of Equated Monthly Instalments (EMIs).

Doing such an assessment will help determine your the effective of your home loan investment. In addition, with this assessment, you will also get a clear understanding that for how long your assets can serve as cover for your EMIs if your regular income stops due to some unforeseen situation. You can determine your home loan budget by following a 4-step process. The steps involved in this process include estimating your net worth, estimating your home budget, home loan eligibility and cover. In the first step, the estimation of your net worth is done by considering all the assets and liabilities held by you and your family. The assets include cash and cash equivalents like savings accounts and fixed deposits, family investments such as mutual funds, equities and insurance, gold jewellery, retirement accounts such as Pension and Provident Fund, durable goods and automobile. The liabilities include home loan, car loan, personal loan, student loan, gold loan, credit card expenses and taxes. Your family’s net worth is defined as the difference between the total assets and the total liabilities. The formula for calculating the net worth is Net Worth = Total Assets – Total Liabilities. After estimating your net worth, you need to estimate your home budget. Usually, banks do perform a detailed assessment of your financial condition before providing you with a home loan. However, they do not consider various costs that consume your disposable income such as grocery expenses and medical bills. By doing an affordability check, you can be sure that you do not borrow more than what you can afford. While estimating your home budget, you need to consider various parameters such as net household income after tax, annual income, monthly expenses, annual expenses, monthly fixed obligations and self-assessment of your financial situation. Net household income after tax comprises of the total income of all the family members who contribute towards household expenses. This includes incomes from other sources such as commissions, bonuses and investments. Annual income includes the sum of the entire family income for the year. It includes income from interest on savings account, fixed deposits, bonds, dividends, gratuity, bonuses, fees and commissions. Income from capital gains on selling equities, mutual funds and gold is also a part of the annual income. Monthly household expenses include monthly bills such as grocery expenses, electricity bill, telephone bill, broadband bill, credit card bill, child’s education and lifestyle expenses. Annual expenses include the sum of monthly utility expenses for the year. These include annual healthcare expenses, annual premiums for health and life insurance, education, transportation, eating out and shopping, the sum of monthly food and grocery expenses for the year and sum of monthly rental paid for the year. Monthly fixed obligations include your fixed payable expenses such as credit card bills, EMI towards car loan, personal loan and education and the insurance premiums. Self-assessment of your financial situation involves the determination of your net disposable income. This calculation is done subtracting the monthly expenses and obligations from the monthly income amount. Home loan eligibility is the third step involved in assessing your financial situation. Home loan eligibility is determined on the basis of three important parameters that include Fixed Obligation to Income Ratio (FOIR), Loan to Value Ratio (LTV) and Instalment to Income Ratio (IIR). FOIR is the ratio of the sum of all the EMIs (current and future) to your gross monthly income. Usually, banks prefer an FOIR that is not more than 50%. LTV denotes the part of the property value that can be availed as the home loan from the banks. The LTV ratio is based on the size of the home loan sought and determines the maximum amount that can be sanctioned to a property buyer. The Reserve Bank of India (RBI) mandates the LTV of 90% for home loans of INR 30 lakh or less. For home loans more than INR 30 lakh and up to INR 75 lakh, the RBI mandates an LTV of 80%. For home loans more than 75 lakh, the RBI mandates an LTV of 75%. IIR denotes the percentage of your income going into paying the EMI of your home loan. Banks usually use an IIR of 30% to 40% while determining your home loan eligibility. Cover is the fourth and final step to assess your financial situation. If there is a sudden drop in your family income or a sudden rise in the expenses for some unforeseen reasons, you should have enough cover to make all your EMI payments for a few months.