Can a flat be kept as collateral for lending money?
Question asked by Venkat from Bangalore, India:
Namasthey Vatsala,
Please can you help with your legal expertise :
I am planning to lend 20 Lakhs to a person for a period of one year with his apartment flat as collateral. He says that he will give a GPA notarized on my name as surety.
1. Is GPA the right way to proceed or is there any other better approach for ensuring my lent money ?
2. Is GPA notarized sufficient gurantee that I can sell the flat towards my principal amount should I not get my principal amount ?
3. Are there any special clauses to be included in GPA ( irrevocable, etc ? ) .
4. In the unfortunate event of death of either party , will the GPA be valid and will my family still claim the collateral for my lent money ?
Thankyou in advance !
Warm Regards
Venkat, Bangalore
Vatsala Speak:
A notarized GPA is totally insufficient. You should at the least take a registered GPA in your name. However, even that can be revoked. You are therefore advised to enter into an agreement of sale where you show the Rs. 20 lakhs as advance paid by yourself to purchase the flat. You can combine this with a registered GPA (along with custody of original documents) and use the same to register the flat in your name after the loan period is over, in case of default. However, possession may still be with the person to whom you are lending the money, so if he does not evict, you will have a problem. Alternatively, you could also get a Promissory Note executed in your name showing the details of the money paid and the date on which it is to be returned to you with interest. In case of default, you should go to court and file a simple money suit for recovery. However in this case your loan is unsecured. A third option is to register a mortgage deed. Although it will be difficult for you to sell the property in case of default without prior court permission, you can protect the property from being sold to others. You can also sue for recovery in case of default.Vatsala
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