Complete Understading of Legal, Valuation and Technical Reports for Disbursement of Loan

Process after issuing of term sheet

After agreeing on term sheet following are the documents that need to be closed on priority as closure of these documents are prerequisites for sanction of amount

A) Title Report / Legal Diligence

The title report is a document that is commonly used in the real estate industry today. Here are the basics of the title report and what information you can find on one.

Whenever a property is sold, a title report is going to be generated. Typically, a title company is going to be the one that will generate this report. In some cases, an attorney or escrow company will be the ones to come up with the title report.

Due diligence is conducted mainly to verify the ownership of title over the property and any encumbrances over the property, so as to protect one against pre-existing claims over the property. Such claims could either effect the ability of the transferor to transfer the property or could attach themselves to the property even after it is transferred.

A title search is performed primarily to answer three questions:

  1. Does the owner/ lessor have sufficient authority/ interest/ right to enter into the transaction involving the property in question?
  2. Do any liens exist on the property which needs to be discharged before the consummation of the transaction in question? These could be in the nature of mortgages, charges, acquisitions, unpaid taxes, litigation, easements and other assessments.
  3. What are the nature of restrictions on the use of the property?

Type of Due Diligence/ Title Search:

  1. Full search; and
  2. Limited search.

Full Search: In a full search, the search regarding status of ownership of the property is generally conducted for a period preceding thirty (30) years (or more) from the date on which the seller in question came to acquire the property. Detailed search of all aspects relating to the history of that property such as the status of encumbrances over the property, the status of disputes relating to the property, the applicable regulations and the status of compliance of such applicable regulations relating to the property in question.

Limited Search: A limited search is generally conducted in transactions where the property is taken on lease for a short term (usually under 9 years). In such instances, the period for which the preceding ownership of the property is traced is generally restricted to fifteen (15) years (or less) from the date on which the current owner of the property came to acquire the property. The search relating to the history of the property may be limited to restricted aspects such as recent title history, encumbrances on the property, disputes related to the property etc.

Steps involved in conducting such due diligence/ title search:

In order to conduct a title search/ title verification, the following aspects would require to be examined:

  1. Legal capacity of the present owner of the property (whether the person is legally capable of entering into a binding contract for sale or lease of the property or for mortgaging the property);
  2. Nature of current owner’s right over the property, and whether such right is transferrable;
  3. Source of right or title of the current owner;
  4. Legality of the construction;
  5. Encumbrances over the property; and
  6. Whether the property is a part of any acquisition process.

Step 1: Legal capacity of the seller:

It is necessary to ensure whether the current owner of the property or any of the predecessor title holders of such owner is:

  1. a minor (a person, who is below 18 years of age); or
  2. a person of unsound mind.

Step 2: Nature of current owner’s right over the property:

The types of rights that an owner can have over the property can be classified as follows:

  1. free hold or absolute ownership;
  2. right of perpetual lease;
  3. tenancy right; and
  4. land allotted by State Government/ Central Government under various enactments.

Step 3: Source of right or title of the current owner:

  1. by purchase:
  2. by inheritance
  3. by partition:
  4. by Gift
  5. by will
  6. by perpetual lease:

Step 4: Legality of the Construction:

If the property involves a construction on the land, it also becomes necessary to examine the legality of the construction

Step 5: Encumbrances over the property:

To verify whether there are any encumbrances, charges, or mortgages on the property in question. The records of the concerned Sub-Registrar of Properties should be examined to ensure that the property is free from all sorts of registered encumbrances or charges or mortgages. It is also advisable to obtain an encumbrance certificate

Step 6: Whether the Land is a part of any acquisition process:

It is also important to know if the property is under the process of acquisition by any government authority. If the property has been acquired by the government, then the property ceases to belong to its original owner and becomes the property of the acquiring authority.

In our view, an advocate needs to undertake the following before issuing a title certificate:

  1. Peruse the title-deeds in original.
  2. Undertake searches in the offices of the sub-registrar of properties. This search should cover a period of at least the last 30 years. In case of companies, a search of the records of the Registrar of Companies should also be undertaken.
  3. Obtain an encumbrance certificate.
  4. Make enquiries on title and obtain satisfactory answers.
  5. Obtain declarations on oath from the relevant persons regarding the factual position before issuing the certificate of title.
  6. Public notices should be published in at least two newspapers (one in vernacular and the other in English circulating in the area where the property is situated) inviting claims of members of the public against, or in respect of, the property in question.

B) Technical Diligence

Technical Due Diligence (Tech DD) is the structural and facilities engineering analysis of rental properties and property developments, and comprises:

The Technical Due Diligence Report (Tech DDR) contains the following outline:

  • Summary of the results
    • Conclusion, including costs
    • Opportunities / threats
    • Essential measures
  • Project data
  • Structural assessment
  • Floor areas
  • Costs
  • Leases and service agreements
  • Building management
  • Maintenance


C) Valuation Report

Estimating the value of real property is necessary for a variety of endeavors, including real estate financing, listing real estate for sale, investment analysis, property insurance and the taxation of real estate. For most people, determining the asking or purchase price of a property is the most useful application of real estate valuation.

  • Regional / local real estate markets analysis
  • Key projects analysis
  • Analysis of the near / distant environment
  • Real estate rental / sales market analysis
  • Market forecast
  • Choice of adequate calculation methods and techniques
  • Calculations of commercial real estate cash flows
  • Unique method of calculation of adjustment ratios
  • 50 adjustment ratios while using comparative approach
  • Accurate consideration of specific characteristics of the real estate

D) Financial Due Diligence

  • Analysis of property valuations
  • Risk assessment and analysis
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