Why is Legal Due Diligence and clear title search of property required?

Due Diligence

Last Updated on June 10, 2023 by

Due diligence is a legal process of verifying the ownership of the title over the property and checking the encumbrances over the property. While buying or selling any property, it becomes significant to have complete information about the property in question. Therefore, the prime objective of the due diligence is to gather information to ensure that the seller of the property is its owner and holds all the necessary rights to transfer the ownership of the property to the bonafide buyer. Due diligence can identify the risks involved in the transactions relating to the property and alleviate the same.

Due diligence is also required by an owner of the property who wishes to mortgage his property with any bank or a financial institution. The due diligence report is required to be submitted to the financial institutions. In cases of NRIs, many difficulties arise in tracing out their ancestral properties left in India by their forefathers, but due diligence is of great help to them. The physical investigation of the property is always more reliable and authentic, which is a part of the due diligence.

 An exhaustive investigation is needed to ensure that the following aspects are examined:

  • Title deed: To prove the actual transfer of ownership of the property, a sale deed or title deed are essential documents. Registration at the sub registrar’s office is required under whose jurisdiction the property falls. One can always check if a valid title deed exists concerning the property. 
  • Mutation Records: Mutation records are also extracted from the concerned department to verify the present ownership.
  •  Encumbrance certificate: An encumbrance certificate states that the property is free from any encumbrances or loans. It becomes essential for procuring a loan against property from banks. 
  • Occupancy certificate: The municipal corporation issues an occupancy certificate or completion certificate after constructing a building to establish that it was built according to a sanctioned plan.
  • Receipt of property tax: The property tax receipts explain that the owner has been paying all the taxes timely. 
  • Possession of the property: If the property owner is an NRI and has not visited the property in a long time, then by way of due diligence, he/she can also get it checked in whose physical possession the property is lying.
  • Electricity, telephone and water bills are also relevant documents to establish ownership.

Generally, there are three types of reports which can be prepared for concluding the results of the title search and due diligence:

  1. Title Search Report:  Under this report, clarity upon the current title of the property is obtained. The revenue records are inspected, and the certified copies of all the relevant documents are procured. It also includes the on-ground status of the current condition of the property and the current occupant of the property, and how they own the said property. Additionally, photographs of the property are also included.
  2. Complete Land Search Report:  Under this report, a thorough investigation or search is conducted for the last 30 years revenue records. This type of report is also inclusive of documents, photographs, valuation of the property. For complete search, every aspect of the property’s history, like the flow of ownership rights, encumbrances, etc., is examined in detail.
  3. Evaluation Report: When a party is already sure about the title and the current status of the property but needs to know the property’s current valuation, then the evaluation report is prepared, which includes only the valuation of the property and photographs of the property. The report is inclusive of both governments as well as market valuation.

The following can be the challenges that one may face while performing the due diligence:

  • Often, the party cannot provide complete property details such as an address, survey numbers, khasra numbers, etc., making it difficult to trace the property. 
  • When the documents are unregistered, it becomes challenging to trace the same on record as they will not be available.
  • Performing due diligence is a time consuming and tedious process when tracing the title deed or title search by inspecting the previous 30 years record, keeping in mind the complexities of land documents.

To avoid any mistakes, over-looking or confusion, it is suggested to hire a competent professional firm, which can help to find the desired information.

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