In India, the Encumbrance Certificate (EC) plays a crucial role in verifying the ownership and legal status of a property. It is a legal document issued by the sub-registrar’s office that proves whether a property has any outstanding mortgages, liens, or encumbrances. The certificate is often requested during property transactions to ensure the property is free from any legal claims.
When a borrower repays a loan secured by the property, the charge on the property needs to be closed, and the encumbrance certificate must reflect this change. The process of closing the charge on the encumbrance certificate is an essential step in clearing the title of the property and making it ready for transfer or sale.
What is the Charge on Encumbrance Certificate?
A charge on a property indicates that the property is mortgaged or that there is some other liability attached to it. When a loan is secured using a property, the financial institution (such as a bank) registers a charge on the property to ensure that they have the legal right to recover the loan amount by selling the property in case of default. This charge is recorded in the Encumbrance Certificate (EC).
The charge will remain on the property’s title until the loan is repaid in full. Once the loan is cleared, the charge needs to be officially closed or discharged in the encumbrance records to reflect that the property is no longer encumbered by the mortgage.
What is the Closure of Charge on Encumbrance Certificate?
The closure of charge refers to the legal process of removing or discharging the mortgage charge from the property once the outstanding loan has been fully repaid. The process ensures that the property is free from any liabilities or encumbrances, making it clear for transfer, sale, or further legal actions.
In the context of an Encumbrance Certificate, once the charge is closed, the certificate will no longer reflect any existing mortgage, and it will indicate that the property is free from encumbrance.
Steps Involved in Closure of Charge on Encumbrance Certificate
1. Repayment of Loan
The first step in closing the charge is the full repayment of the loan against the property. This includes the principal amount along with any interest, penalties, or fees. Once the outstanding balance is cleared, the borrower can request the lender to initiate the process of closure.
2. Obtaining a No Objection Certificate (NOC) from the Lender
After the loan is repaid, the borrower should obtain a No Objection Certificate (NOC) or Discharge Certificate from the lender. This document states that the loan has been fully repaid and that the lender no longer holds any claim or charge on the property.
3. Submitting the Request for Closure to the Sub-Registrar
Once the NOC is obtained from the lender, the borrower must approach the local sub-registrar’s office where the charge was originally registered. The borrower will need to submit the following documents to request the closure of charge on the property:
- No Objection Certificate (NOC) or Discharge of Mortgage certificate from the lender.
- Original Sale Deed/Mortgage Deed: The deed under which the mortgage was created.
- Repayment Receipts: Proof of full payment of the loan.
- Encumbrance Certificate: The existing EC to prove the mortgage status.
- Request/Application Form: A formal application to remove the charge from the records.
4. Verification by the Registrar
The sub-registrar’s office will verify the documents provided and ensure that the loan has been fully repaid, and that there are no outstanding dues. If the documents are in order, the registrar will issue an order for the closure of charge on the property.
5. Closure of Charge in Encumbrance Certificate
Once the charge is officially discharged, the sub-registrar will update the Encumbrance Certificate to reflect that the mortgage charge has been removed. The updated EC will no longer show any encumbrance, and the property will be considered free from any legal claims.
6. Obtaining Updated Encumbrance Certificate
After the closure of the charge, the borrower can request a new Encumbrance Certificate from the sub-registrar’s office. This updated certificate will show that the property is clear of any mortgage or financial encumbrance.
Time Frame for Closure of Charge on Encumbrance Certificate
The time taken for the closure of charge on an Encumbrance Certificate depends on various factors such as:
- The efficiency of the local sub-registrar’s office.
- The time taken by the lender to issue the NOC or Discharge Certificate.
- The completeness of the documentation submitted.
Typically, once the lender issues the NOC, and the borrower submits the required documents to the registrar, the process of closure can take anywhere between 30 to 60 days. However, if there are any discrepancies in the documentation, it may take a longer time.
Documents Required for Closure of Charge on Encumbrance Certificate
To close the charge on the encumbrance certificate, the following documents are generally required:
- No Objection Certificate (NOC): From the lender or financial institution confirming the loan repayment.
- Repayment Receipt: Proof of loan repayment, including any final settlement amounts paid to the lender.
- Original Mortgage Deed: The deed that originally established the mortgage.
- Application for Closure: A formal request/application to the sub-registrar for the discharge of the charge.
- Encumbrance Certificate: The current EC that shows the existing mortgage or charge.
- Identity Proof: KYC documents like a passport, Aadhaar card, etc.
- Tax Payment Proof (if applicable): If there are any outstanding taxes on the property, they must be paid before the charge can be discharged.
Importance of Closure of Charge on Encumbrance Certificate
- Clear Title: Ensuring the closure of charge is vital for ensuring the property title is clear, which is necessary when selling or transferring the property. A property with a mortgage charge cannot be freely sold or transferred.
- Legal Protection: Closing the charge on the encumbrance certificate ensures that no one can claim any financial interest in the property, protecting the borrower from future legal issues.
- Future Transactions: If the charge is not removed, the property cannot be used as collateral for further loans, and it may also affect the buyer’s ability to obtain clear ownership if the property is being sold.
- Marketability of the Property: A property with a discharged encumbrance certificate is more marketable, as it assures the buyer that the property is free of any financial or legal liabilities.
Conclusion
The closure of charge on an encumbrance certificate is a vital step in ensuring that a property is free of any financial obligations, allowing the borrower to sell, transfer, or mortgage it in the future. The process involves repaying the loan, obtaining a No Objection Certificate (NOC) from the lender, submitting the necessary documents to the sub-registrar’s office, and ensuring that the property’s records are updated. It is crucial to ensure the charge is legally closed to protect your property rights and facilitate smooth future transactions.
Disclaimer:
The information provided in this blog is for general informational purposes only and should not be construed as legal advice. Property laws, including the process of closure of charges and encumbrance, may vary depending on jurisdiction and specific circumstances. It is always recommended to consult with a qualified legal or property expert to ensure compliance with the latest regulations and procedures. The author and platform do not take responsibility for any actions taken based on the information provided in this blog.
