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Resale Red Lights

Yesterday, this paper reported on the logic and loopholes when prospective buyers opt for a resale flat. The questions in Part I of this two-part series, focused on the market for resale flats and the advantages and disadvantages of new flats compared to resale homes. In Part II of the piece, advocate and expert AMEET V MEHTA, answers questions about how to be cautious while buying and touches on prickly issues like maintenance problems in resale homes.

Ameet-Mehta
Here you go: Advocate Ameet Mehta (left) at his book launch on co-operative housing society matters 

The interview:
Some negatives of buying resale homes…
>> Normally people staying from day one are well accepted as neighbours and are reasonably close to each other, rather than people who move in after a couple of years.
>> Society rules may not suit you since they are already established. In a new upcoming building, you have a chance to be part of a team for framing rules including decision-making.
>> There is a limited choice of floor rise or a good view, since units on resale are limited. There are no major changes possible in the structure of the house of an already existing flat. That is possible in a new flat.
>> You will need a good trusted lawyer to ensure that all your deal papers are proper. That again comes at a cost.



When a person goes in for a resale flat, what assurance do they need from the seller?
The chain of agreements, share certificate, loan papers, and maintenance receipts, payment of stamp duty plus registration and other necessary paperwork should be in order. They should also ensure that previous pending maintenance and property tax payments are paid in full. Many times, sellers are defaulters and they tend to raise their hands due to the continuous outstandings shown in their account. The buyers should be very careful while taking over such flats. They should also see and check that the ‘sq ft’ mentioned in the agreement matches with the actual area of the flat. Buyers should also check and double check if the seller is not selling the same flat to two people. Hence taking possession of original documents is extremely important.

How could previous owners try to dupe buyers?
There are many grey areas wherein a previous owner may try to dupe the buyer.
>> He/She may hide their outstanding loans / mortgage with a bank. Though the banks may normally keep original documents such as agreements / share certificates with them, there is sometimes the possibility that the seller would have got issued a duplicate share certificate from the Society stating that his earlier share certificate was lost.
>> The seller may not hand over all the chain of documents and transactions occurred during the life of a flat. Hence possession of the missing link in terms of documents should be taken in custody.
>> The seller may sometimes claim that the share certificate is lost or not traceable. In such circumstances, buyers should insist for a duplicate certificate from the seller, which is issued by the Society.
>> The buyer should check for title certificate ensuring no third party right is created in the flat.
>> The seller might sell the same flat to two people simultaneously.
>> Many times, sellers take money in advance before giving possession. Buyers should ensure there is not much gap in the last payment paid and taking possession of the flat.
>> The seller may claim that all maintenance is paid till date. Buyers should ensure that possession of all maintenance receipts especially of the last four quarters are taken from sellers.
>> The seller may try to sell parking spaces and make some good money. The buyers should ensure the validity of such claims of selling parking space and check documents pertaining to such parking. Also, the parking norms laid down by Society should be understood. Though parkings are not saleable as per Supreme Court judgement, the reality is that they are sold.
>> If the seller happens to be an investor (normally called as investors flat) buyers should carefully check the terms of the agreement. Builders have been inserting the ‘no-sale’ clause in sale agreements, which state that the buyer cannot sell the flat for a certain period post completion. If the buyer plans to exit before that, you the buyer may have to seek a No Objection Certificate (NOC) from the builder. In short, the investor flat would actually end up becoming a costly affair for the buyer since the period stipulated in no-sale clause varies from 1.5 years to three years. There is no specific pricing available for an NOC although it ranges between R100 and R500 per sq ft. The cost paid to the builder towards the NOC will buyers profits and in short, the buyer would be taken for a ride.
To overcome the above, the buyer should keep a good lawyer and or a reliable real estate agent.

Would a resale flat (generally) be cheaper than a new one? Or, is that not true?
There are various reasons why a resale flat would generally be cheaper than a new flat, though not always. The maintenance of new flat would normally be higher than a flat under resale. In case of flats under resale, the property tax and maintenance would already be adjusted and calculated since the flat is quite old. Further, many societies have made their maintenance almost negligible as they would have made sufficient FDs / savings whose interest would be covering major expenditure of Society. Another issue is rising interest rates on new flats. Hence resale flats would work out cheaper. You are also not paying for floor rise in case of flats under resale.

It’s worked out lump sum, which is not the case in new buildings under construction. Importantly the flat in resale is already in an area which may be congested unlike the new flats, which have more open areas and surroundings especially due to RG rules. Hence we may find resale flats cheaper than the new ones.

In several resale flats, there is extensive work to be done like waterproofing and other repairs too. Who bears the costs?
The buyer would normally bear the cost since he would like to repair and design (redesign) the flat as per his requirement. The buyer and seller would negotiate and compromise the price to that extent. However as regards to waterproofing, a buyer should be cautious and ensure there are no previous disputes to this effect with the Society, since many a time, there are some old disputes of members with Managing Committee / Society.

The burning issue could be, “Should the Society bear the cost or the member?” There should be enough clarity on the subject especially for members staying on the last floor of the building. Normally, the cost is borne by the Society since it is a matter related to the Society. But, if the leakages are continuous, then the Society may have to undergo major waterproofing which may be a costly affair.

What papers does the Managing Committee of a Housing Society need if a flat in the building has been resold?
The transferor should give a cover letter to the Society intimating his intention of sale of flat. It should be accompanied by:

>> Bank NOC / documents in case the flat is mortgaged.
>> Undertaking-cum-indemnity by transferee/Declaration as prescribed in bylaws.
>> Copy of Agreement including confirmation of Stamp duty and registration payment.
>> Various Transfer Forms.
>> Transfer Fee and Entrance Fee.
>> Transfer premium, as applicable.
>> Chain of agreements, which is recommended.
>> Nominee Form (if Society insists).
>> Any Lien documents.

The forms required from seller are:
>> Form Appendix 20 (1) which is a form with notice of intention of a member to transfer his / her / their shares and interest in the capital / property of the Society.
>> Form Appendix 21 which is a form of application for transfer of shares and interest in the capital / property of the Society by the transferor (101).
Form Appendix 13, which is a form of notice of resignation from membership of the Society by outgoing member.
A declaration in support of handing over the possession.

The forms required from the buyer:

>> Form Appendix 20 (2), which is a type of consent of the proposed transferee for transfer of the shares and interest of the member – i.e. transferor (Seller) to transferee (Buyer)
>> Form Appendix 23, which is a type of form for application of membership of the Society by the proposed transferee (Buyer)
>> Form Appendix 4, which is an undertaking to be furnished by the prospective member to use the flat for the purpose for which it is allotted.
The Managing Committee is required to dispose off the transfer application within three months from date of receipt of documents.

This is the last part and concludes our two-part series on resale flats. 

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