CAN A PROPERTY BE ATTACHED BY A COURT OR BANK? HOW TO CHECK THE PROPERTY BEFORE PURCHASING?

Jul 15

19 min read

By NyayKart Legal Team - Experts in RERA, consumer disputes and property law across India. This Article Written By Nishant Aggarwal.

Purchasing a property by a person is often one of the biggest and most financial draining decision in a person’s lifetime. Before, investing such a big sum the price, location and registration of property’s paperwork are the only areas focused upon, ignoring an equally important aspect: whether the property in question is free from all legal claims or not. As a property may appear to be genuine but still could be attached on an ongoing suit, family disputes, bank mortgage or government recovery proceedings. Even though, the seller might have the keys and access to reside in the property and might even show a registered sale deed as well due to which after the purchase the buyer might still have to litigate a case for years if these problems are first found after payment. But, by proper analysis a lot of these risks may be evaluated before the transaction and paper transfer of property in question is completed.

The good thing is that many of the risks mentioned could be ascertained before the property purchase happens. As the most important question is not only the title holder or in other words seller’s name to be reflected in the document but also as a careful and informed buyer the property needs to ask if any ongoing suit, family disputes, bank mortgage or government recovery proceedings or any third party has any interest over the property. This article focuses on what a buyer should check before purchasing of a property, third party rights (if any), how bank claims work and laws governing such issues in India.

What Does Attachment of Property Actually Mean?

In the simplest terms, an attachment of property means placing the property in a legal restricted area where the property cannot be freely modified, transferred or dealt with without the prior approval from the court or competent authority that obtained the attachment as the rights of person/ authority in the attachment of property might get affected. Hence, to recover the dues or for enforcement of legal rights, attachment of a property is done.

Section 60 of the Code of Civil Procedure Code (CPC), 1908 lays down property that may be attached and sold to enforce an execution decree, subjected to certain exception listed in the provision. The provision has a list which includes land, houses and other buildings belonging to the judgement debtor including the disposal right over a property that the judgement debtor holds for his own benefit.

In What Situations Can a Court Attach a Property?

A court may attach a property in dispute at different stages of a civil dispute. But, for the buyer the timing of attachment of property matters because an attachment before the sale and after a dispute arises after a completion of transaction may raise various and different legal questions.

Attachment Before Judgment

Order XXXVIII Rule 5 of the CPC empowers a court, in special circumstances to call upon a defendant (s) to present or furnish security when the court is satisfied that the defendant intends to influence, hamper or delay execution of possible decree by disposing of, removing or transferring the property. This also empowers the court to order conditional attachment to prevent defendant from hampering or defeating the court process by making assets unavailable.

For example, Take a pending recovery suit against the owner of a business. There is credible evidence during the case that he is rushing to sell his only asset of value, so that if the claimant prevails, there will be nothing left. CPC provides protection the Court can grant Purchasers should be aware of the proceeding before paying for such property.

Attachment During Execution of a Decree

A second situation occurs when you already have a decree. In case of non-compliance, the decree-holder can apply for execution against attachable property. This is where Section 64 of the CPC comes into play. More generally, a private transfer of the attached property in violation of an attachment is invalid against those claiming rights which may be enforced pursuant to that attachment. This section also contains a particular exception applicable to certain transfers made in pursuance of contracts relating to such transfers entered into and registered prior to the attachment.

This is why dates matter. A lawyer looking at the transaction might compare the date of agreement, its registration, the attach order and the subsequent deed of sale. Never depend on unsupported wording by buyer in form of finality is “almost over” concerning the court case. You need to check the real orders and case record.

Can a Bank Take Possession of a Mortgaged Property?

Yes, a bank can take possession over the property that is mortgaged, following certain laws, procedures and regulations in existence. When a person uses a property as a collateral security to obtain a loan, the loan lender automatically gets certain rights over the mortgaged asset. Instead of the need of a court’s order first, the SARFAESI act which was legislated in 2002, allows the secured creditors to act directly to recover their sum assured laying down steps to be followed.

For example, Section 13 of the SARFEASI Act, 2002 provides for a creditor to send a notice to borrower asking him to pay the amount borrowed within sixty days, failing which the lender/creditor can proceed as per Section 13(4). For example, under Section 13 of the Act, a creditor can send a written notice to a borrower giving them sixty days to pay off the loan. But if there is a scenario where the borrower doesn’t pay back then the lender can follow legally laid down steps set under section 13(4) and take formal possession of the property as prescribed under the act.

This means that merely because of physical presence of the seller in a property, it doesn’t make it debt free. The seller might be residing in the flat or house which is mortgaged. A seller claiming to use your payment to clear the loan would be applicable only if the seller actually uses the payment to clear the loan but it is very important to make sure that the deal is structured correctly with the lender to avoid liability as simply handling over payment without any formal acknowledgement could be risky.

Can a Seller Transfer Property During a Pending Court Case?

Yes, the seller can still sell the property attached in a lawsuit pending against him, but buyer purchasing the property needs to be careful purchasing the property. There is a principle called lis pendens (suit pending) as stated in Section 52 of the Transfer of Property Act, 1882, which means that if there is a lawsuit over a property, the rights of that property are in question. During the ongoing lawsuit, the seller cannot act in ways that interfere with the decision of the court unless prior permission obtained from court in advance.

In a particularly notable case, the Supreme Court upheld this principle in Raj Kumar v. Sardari Lal (Civil Appeal No. 23801 of 2018) and held that if a buyer acquires property while a lawsuit is still pending, they could be affected by the outcome of that case.

Does a Registered Sale Deed Guarantee a Clear Property?

No, even though a registered sale deed is important for transaction purposes required under the Registration Act, 1908. But just because something is registered doesn’t make it clear title. A registered deed only proves the process initiated but it does not address the issues related to past mortgages, legal claims or issues in the seller’s title.

Whenever a person buys real estate/ property the buyer needs to keep two questions repeatedly in mind which are:

Does the seller have a clear title over such property or not?
Whether the transaction between seller and buyer is legally completed and registered or not?

How Can You Check Whether a Property Is Attached or Mortgaged?

This is to keep a note of that one certificate or website alone cannot tell if a property is clean or not but there are a lot of steps involved to obtain the property of best interest and with due diligence and no legal hustle listed below:

1. Examine the Complete Chain of Title

It is necessary to check more than one last sale deed to find out the true nature and the background of the property on how it has been transferred over the years, change in ownerships, the documents testify how the transfer took place that could be through Sale deeds, Gift deeds or other legal way and their paperwork. Through these, it is necessary to check and verify the names, survey numbers, property limits and location and description of the property clearly to avoid hustle.

2. Obtain the Applicable Encumbrance Certificate

Then, the next step is to obtain Encumbrance Certificate (EC) as it is important to expose of to know if there are any transactions affecting the property. But the drawback of EC is that it doesn’t ascertain a property to be risk free as it should be viewed with other legal documents like title deeds and other documents. But the rules and procedures to obtain an EC varies state to state and the type of property.

3. Conduct a CERSAI Property Search

Even though, EC is a known document to most people but very few are aware of another important search called the CERSAI, which has gained a lot of importance with increasing formalities of purchasing a property, as CERSAI is a type of search used to identify if the property has been pledged to anyone or entity as a loan skipping the long steps of verification and skipping this step could risk the buyers’ rights over the property as well.

The CERSAI was established under section 20 of the SARFEASI Act, 2002.

CERSAI stands for The Central Registry of Securitisation Asset Reconstruction and Enforcement of Security Interest of India, offering public safety add on before a buyer purchases a property. It is clearly seen the difference of the role of an EC search and CERSAI search, they shouldn’t be confused as well.

The main contention to introduce such search was the issue of sellers mortgaging property to multiple loans against the same property but this brought in transparency and protection towards buyer’s interests.

Who Maintains CERSAI?

CERSAI is maintained and functionable under the Government od India’s Ministry of Finance. Where a separate service called financial services take charge over this. It is helped by public sector banks, NBFC and financial institutions with relevant legislations supporting it.

How Can a Buyer Conduct a CERSAI Search?

If a buyer wants to use the function of the CERSAI search, before purchasing a property, the buyer can conduct an Asset- Based Search through the official CERSAI website through steps listed below:

The buyer needs to visit the CERSAI website page;
Then after logging in select the Asset – based search option;
Then enter the necessary property details associated;
Pay the necessary search fee set;
Download the report generated.

Many Professional advocates carrying out practise in property law consider it a standard part of verification before purchasing the property and conducting CERSAI report search.

Is the Search Free?

No, the search is not free and involves a fee to be paid but the simple reason being, it helps identify and avoid a huge risk of mortgage or later security issues but people this it as an add on expense regretting later ignoring this step.

What Information Does a CERSAI Search Provide?

When a person conducts a CERSAI search, there are several details associated with the property which is found like:

Whether there is any registered ongoing or otherwise security interest against the property in question;
The name of the bank or NBFC or any other financial institution involved with interest in the property;
The information about the borrower who’s taken the loan;
The date of registration of the asset;
Details regarding the asset’s charges, mortgage charges, etc.

What Are the Limitations of CERSAI?

CERSAI search is undoubtedly useful while verifying a property, but it should not be mistaken for a complete legal check of the property. It only helps a buyer find out whether a security interest has been registered over the property. Thus, there are various issues which fall outside its scope. For example, a CERSAI report cannot explain or show whether a seller actually holds a clear and marketable title or not.

It also does not reveal if the property is involved in a pending civil case or whether there are disputes between family members, legal heirs or other persons claiming rights over the property. Likewise, matters relating to inheritance, partition or ownership cannot be determined from a CERSAI search alone. Another point that buyers often ignore while purchasing a property is that a CERSAI search is not a substitute but an add-on to other property records. It cannot be replaced by an Encumbrance Certificate, nor can it replace the need to verify the original title deed or other relevant legal documents maintained by the registration and revenue authorities.

In other words, a CERSAI search should be treated only as a part of verification and not the verification itself. Before purchasing a property, a buyer should read the CERSAI report along with the Encumbrance Certificate, title documents, court records and other relevant documents so that the legal position of the property can be understood more clearly.

4. Search for Pending Court Cases

To avoid any further problems, it is advised to look at court records by using the seller’s details to verify any legal disputes or suits pending on or concerning property in question and also verify it through eCourts which allows to look at status of case and it is advised to keep reading actual court orders and the final decree before making a purchase as well.

5. Inspect Original Documents and Loan Closure Records

The buyer should not hesitate to ask and look at original documents related to the property and if the seller claims the property is loan free from all prior loan, then the buyer should request closure document to officially verify the same and not rely on loan closed statement alone.

6. Check Revenue, Municipal and Society Records

The buyer should also verify the property and its compliance to state laws and type of property. Those could be types of transactions, mutation entries, tax records, municipality approvals, etc. even though, these records are not sole indicator for confirming ownership but if any lack in these could be a serious concern in later point of time.

Can an Attached Property Be Sold?

Even though a attached property is assumed to be restricted to be sold or modified but, in reality the sole question is who has attached the property, why and the legal framework under which such attachment occurred.

If a civil court attaches the property on any ongoing legal dispute, then any transfer or modification in the property post attachment does not unduly affect the right of decree holder but, according to Section 64, of the civil procedure code, 1908, any private transfers is considered void against attached property except a few conditions. This refers to even if there is a sale deed executed the buyer does not get complete and exclusive rights over the property unless the suit is decided in favour.

But in similar case if a property has been mortgaged to bank, upon initiation of recovery steps taken under the SARFAESI Act, 2002, the borrower cannot alienate the property to avoid bank’s claim on loan amount and the new buyer who’s taking such property will still hold bank’s rights over the property unless debts are settled and acknowledged by bank by formal approval.

This situation changes if there’s already a suit concerning ownership of property. Under the doctrine of Lis Pendens (suit pending) listed in section 52 of the transfer of property Act,1882 says that purchase of property attested in an ongoing suit doesn’t make the transaction void but if the decree is passed against the buyer’s favour, then he should be ready to face the consequences as well.

From the above listed complex issues, it becomes important for buyers to verify the property by taking into considerations its title deeds, mortgage papers, suits pending, etc. to have a safeguard and avoid legal implications in future.

Step-by-Step Checklist Before Paying the Seller

To first get the copies of seller’s original title deeds documents and necessary documents to verify the ownership;
Track the ownership history by looking into multiple sale deeds or other transfer documents proving legal transfer of ownership and trace any inconsistencies if any;
Get hold of the Encumbrance Certificate for the specified period and verify its validity;
To verify the property through CERSAI search for looking into the property’s mortgage history;
Then next to verify the court records using sellers’ details and track the orders of court concerning the property in question;
Review and review the original title deeds and relevant documents associated with the property.
Check the validity of property with local laws, municipalities development records, etc.
Inquire any bank notices if any against the property or any other legal notices thoroughly;
Post conclusion of the above steps draft and include clear title clauses, conditions, disclosures, etc. in written agreement;
Only after releasing payment towards the property but using a legal and significant payment mode for ease of tracking if something goes south.

Warning Signs That a Buyer Should Not Ignore

Even though while purchasing a property a lot of safeguards have to be kept in mind but it does not mean every unusual fact proves fraudulent intention of the seller, but certain actions need immediate verification. For example, if the seller refuses to show original documents, multiple answers regarding loan ongoing against the property, demanding huge advance payments, objects the title verification by a lawyer or anything which shows restrain to bypass the procedure and offers very low market price, ignores bank or court orders casually then these need to beware about by the buyer. A buyer should also investigate family disputes (if any), unexplainable power of attorneys, title deeds mismatch. So even though all problems/ questionable detail does not mean there’s a fraud but if certain conditions majorly listed above occurs then it needs clear and close watch and closer look. Here are some key warnings listed below to be kept in mind:

Practical Example: Buying a Flat with an Existing Bank Loan

Suppose Mr. A who has agreed to purchase a property worth ₹90 lakhs, the seller discloses that there is a ₹25 lakhs payment outstanding as home loan, this does not make the transaction a fraud directly but needs verification on how the loan was obtained by the seller, if proper documentation is present or not, latest dues, the security issued against such loan, etc. all formalities need to be verified by Mr. A himself and also make sure that bank gives a clearance certificate after the loan is paid off and bank releases the property from mortgaged interests, reducing the buyer’s legal risks.

What Should You Do If You Discover an Attachment After Paying an Advance?

If the buyer discovers about the property being attached after paying an advance, then first any further payments need to be stopped. Then, obtain a copy of attachment order, case details, court orders against the property, and agreement copy signed between parties. The next available remedy is dependent on the agreement terms and conditions, seller’s disclosures, documents presented, timing of attachment and facts of the case. Depending on this information, legal options are checked and available remedies are laid down which may include removal of defects, refund of advance, contractual remedies or finally filing a civil suit or ADR as a growing source of addressing disputes.

Difference Between Court Attachment and Bank Mortgage

Although, the terms court attachment and bank mortgage are often confused and used interchangeably but, legally they’re different. This distinction helps buyer to ease and help him before purchasing a property to assess property properly and with caution. Difference explained below: -

Particulars	Court Attachment	Bank Mortgage
Meaning	It is the legal restriction laid down by the court of law or any other competent authority empowered to do so. To protect and secure a legal claim associated with it.	It is the security against a loan in the favour of bank made voluntarily by the party of financial institution as a collateral.
How it Arises	Arises by a court order or suit proceedings initiated under a statute.	Arises only when the borrower borrows a loan and gives the property as a security.
Governing Law	Code of Civil Procedure Code, 1908 or other applicable statutes depending on relevant authority ordering such attachment.	The Transfer of Property Act, 1882, SARFAESI Act, 2002 and other banking legislations.
Purpose	Prevention of property in suit to be sold or modified as to ensure the same is used for recovery of money payable as per decree or statute.	To repay the loan obtained in case of defaults of load advanced.
Who Initiates It?	Court, Statutory empowered authority.	Bank, NBFCs, housing finance company and secured creditors.
Can the Property Be Sold?	A sale may be restricted or may change the nature upon completion of due process or decree of court.	Only after lender’s interests are settled and no issues remain unsolved.
Risk for the Buyer	The buyer’s right over property may change upon orders or decree and becomes bound by court’s decision.	The buyer becomes subjected to liability to bank’s mortgage or recovery until released by bank itself.

Can Government Authorities Also Attach Property?

Most buyers believe that attachment powers vests only with the courts or banks, but that’s not the only authorities which can attach the properties in reality, several statutory authorities are empowered to attach the property as well. This is done to clear and recover government dues or enforcement of public laws. Therefore, while purchasing the property the buyer needs to verify if there is any attachment initiated by authorities like Income Tax department, GST, ED, Other revenue authorities or municipality authorities.

1. Attachment by the Income Tax Department

A taxpayer’s property could be attached by the Income Tax Department in order to recover unpaid taxes owed. Furthermore, according to Section 281 of the Income Tax Act, 1961, any property transferred when any outstanding taxes are to be paid may be deemed to be null and void against government to recover tax and avoid bypassing tax liability. For the same reason, buyers need to ensure there is no outstanding tax liability on the property’s title.

2. Attachment by GST Authorities

The Central Good and Services Act, 2017 empowers the tax authorities to attach property but for a provisional time period in appropriate and necessary cases only. As per section 83 of the CGST Act, 2017 the Commissioner is empowered to provisionally attach property (including bank accounts) during certain proceedings if considered necessary to protect interest of the government revenue. Under Section 83 of the CGST Act, the Commissioner may provisionally attach property, including bank accounts, during certain proceedings if such attachment is considered necessary to protect the interest of the Government revenue. Even though, this power is of temporary nature, still purchasing such property may involve legal complications and also exposes the buyer’s legal complications.

3. Attachment by the Enforcement Directorate

The Enforcement Directorate (ED) has been empowered to temporarily seize assets believed to be involved in a crime under the sections of Prevention of Money Laundering Act, 2002 (PMLA). This shows that the property may be legally refrained from being sold or modify until the procedure is finished and is left as clean. A buyer, should take into account that if a property being sold by seller shall not be of such nature as it could harm the free will nature of the property and be cautious as the person selling the property is facing money laundering investigation.

4. Attachment by Revenue Authorities

A property could be attached by Revenue Authorities including land or other immovable properties like agricultural land, etc. for recovering governmental dues like land revenue, agricultural dues, etc. applicable under individual state laws. This procedure varies based on type of property and state to state affecting buyer’s liability to obtain clean and market usable title over the property.

5. Attachment by Municipal Authorities

As per the state laws, municipality authorities are empowered to collect unpaid taxes or levies and also hold powers to conduct demolition or other actions against premises that violate the regulations or engage in unauthorised or restricted construction depending upon the circumstances. So, before making any purchase the buyer need to verify the municipality clearance certification and ensure all municipal taxes are paid and no dues remain, with no notices issued against the property for recovery.

Why Should Buyers Publish a Public Notice Before Purchasing Property?

One of the key recommended precautionary steps followed by lawyers includes advising the clients to issue a public notice by publishing it in a widely circulated regional newspaper and English newspaper. It adds an extra layer of precaution against hidden and unreported claims, even though not necessarily required under the Indian law but highly recommended.

A public notice notifies the public at large the buyer’s intention to purchase a property and also opens the space by inviting legal claims, objections, or specified interest of anyone in the property which could be reported within a specified time frame if any arises. Even though, the notice by itself does not make the property’s title free of defects but it gives an advantage to the buyer to move forward with the process more confidently if no objections are raised within the specified time period. It is important to note that if there are any title disputes, those cannot be resolved by merely issuing a public notice alone it’s only an extra protection add on.

Why is a Public Notice Published?

A public notice shows the buyer’s intention and will to purchase a property but the notice helps identify the claims not reflecting in official records like:

If the property has any ownership disputes ongoing or otherwise;
Pending claims or disputes between legal heirs or family members in cases of joint family properties like partition or inheritance or otherwise;
If there are any unregistered or other agreements pertaining to the property being hidden;
If the property having any power of attorneys which have been attached the property;
Any other person who’s claiming rights over the property’s ownership or otherwise.

In most cases, the public notice helps to get genuine claims to be responded before the completion of the transaction allowing buyers to safeguard themselves before making full payment.

What Does a Public Notice Usually Contain?

Typically, public notice includes various things for ease of people and to notify the general masses about interest in a property which could influence the buyer’s decision. The components of public notice include:

The name of the owner or seller who holds the property in question;
The description of the property like the type, location, area, etc. of the property;
The buyer shows his intention to purchase such property and invites objections and claims if any are arising from such property;
The time limit is specified making it clear within which how many days can a person could communicate objections and raise specific interests in property if any.

Is Publishing a Public Notice Mandatory?

Even though a notice is not necessarily required by law to be issued before purchasing a property but a buyer is recommended to publish a public notice for an added security, as it would help him avoid any legal complications especially in deals involving expensive properties, inherited properties, old homes, etc.

Frequently Asked Questions

Can I buy a property that is under court attachment?

Even though, such property could be bought which is attached under a court’s attachment but it can be risky as the order or decree of the court will decide if the property will be in the seller’s possession or any other liabilities arise out of the suit which could bind the buyer of the property as well.

Is an Encumbrance Certificate enough to prove that a property is safe?

No, an EC is useful to only act as an added security measure but it does not prove a property to be completely safe and risk free that’s the reason other documents like title deed, CERSAI search, court searches, etc. become necessary.

What if the seller says the bank loan has already been repaid?

If a seller claims a bank loan to be completely repaid, demand a documentary proof like clearance certificate, relevant records, bank acknowledgement, etc. to be sure.

Do I need a lawyer for property verification?

For an expensive property, inherited properties, old homes, etc. to obtain title deed and its verification is a sensible precaution, the lawyer can verify the records genuineness, court orders if any, and clearly examine all records by not solely relying on the seller or broker’s claims.

Conclusion

The biggest property risks are often hidden or invisible during as visit. A property could be well maintained, with amenities but could mortgage to someone else. Therefore, a seller can still have possession but not complete title over the property or the property could hold legal disputes or complications over its title so it’s recommended to follow the above listed steps before going ahead with the purchase to be legally safe and sound. So, it’s better to verify with authorities, obtain documents and check with the court to validate the genuineness of the property.

How NyayKart can help

If you are facing delayed possession, refund issues or unfair settlement offers, NyayKart provides end-to-end assistance: drafting legal notices, filing RERA complaints, representing you before consumer courts, negotiating settlements and executing refund recovery. Book a free consultation to evaluate your case and get a tailored action plan.