Registration of Bank-Financed Properties: A Tool Against Real Estate Fraud

Abstract

Real estate fraud in India has now come in the following two forms: first, selling an immovable property on which a mortgage/security interest is already subsisting, without informing the prospective purchaser about the existence of the same and second, selling the same property to multiple purchasers who are unaware of the sale. Informational opacity is a breeding ground for both wrongs, as prospective buyers and competing lenders may not be able to determine whether the property is already encumbered. This paper proposes that strong, open registration of bank financed property is a front line defence against such fraud, because it transforms private financing arrangements into constructive public notice. The study examines the interplay of the Transfer of Property Act, 1882, the Registration Act, 1908 and the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 in conjunction with the Central Registry (CERSAI) framework, and examines how the doctrines of disclosure, priority and notice are working to protect the bona fide purchasers and the lending institutions. It explains how the judiciary has developed a doctrine of the publicity, certainty and protection from fraud and forgery of registration and examines the relative priority of charges, the effect of non-registration and the equitable mortgage. The paper describes some existing challenges that hinder the protective effect of registration, such as non-registrability of mortgages via mere submission of the title deed, poor inter-agency coordination, and incomplete and presumptive land registers. It concludes that compulsory, integrated digitally searchable, registration of all bank-financed property interests coupled with compulsory encumbrance verification at the time of sale is crucial for transparent, fraud-free property transactions in India.