Illegal mortgaging of apartment lands by builders after sale — how it happens, why RERA Section17 matters, and how to spot it on CERSAI

 

 ILLEGAL MORTGAGING

When a builder sells flats in a project the buyers expect — and the law requires — that the undivided proportionate title to the land and common areas will ultimately vest with the apartment-owners’ association (or the allottees). But in practice many promoters delay or evade executing the registered conveyance deed, keep the land in their (or original landowner’s) name, and then mortgage that land to raise fresh loans. That practice defeats the statutory scheme under the Real Estate (Regulation & Development) Act, 2016 (RERA) and exposes apartment owners to real risk: lenders may take security over the very land that should have been conveyed to the owners. It is known fact that the conveyance of land for collective ownership can be done only to a juristic/corporate body. Formation of which is opposed vehemently by those who want to retain the land. It is also learnt that these people claim that it is a normal practice to mortgage the sold land to raise the funds for the other projects. 

How builders (and landlords) typically create the risk

1. Sale deeds show “undivided interest” clauses but no effective conveyance. Builders often insert clauses in flat sale deeds saying the buyer has an undivided interest in the land, yet they do not execute a separate registered conveyance deed in favour of an association/allottees as required by RERA, nor do they get the mutation/records in the revenue/registration records changed. The result: appearance of transfer on paper but the legal title (and public record) remains with the builder/landowner.  
2. No mutation = land remains legally available to mortgage. Because the official land/municipal/registration records still show the promoter or original landowner as proprietor, that party can approach bankers/financial institutions and mortgage the property — sometimes multiple times or at large sums — even after all flats are sold. This is a common complaint in many states. Banks blindly provide the loans with these documents.  
3. Promoters rely on delay, ambiguity in local laws, or incomplete enforcement. RERA’s Section 17 mandates registered conveyance in favour of the association/allottees; but promoters delay this step (sometimes arguing local law conflict or alleging they will transfer “undivided interest” through the sale deed itself), giving them time/opportunity to pledge the land. Courts and state authorities have repeatedly emphasised that mere wording in sale deeds is not a substitute for the registered conveyance and transfer of records.

Why Section 17 of RERA is the legal fulcrum

Section 17(1) expressly requires the promoter to execute a registered conveyance deed in favour of the allottee/association along with the undivided proportionate title in the common areas, and to hand over possession and title documents within the statutory/local timeframes. The proviso also gives timeframes where local law is silent. Put simply: RERA contemplates a clear, registered transfer of title to protect buyers — not a paper-only “undivided interest” hidden inside sale deeds. Failure to comply is both a breach of RERA and a practical invitation to fraud or fresh encumbrances. 

How CERSAI (the national security-interest registry) helps spot illegal mortgage activity

The Central Registry of Securitisation Asset Reconstruction and Security Interest (CERSAI) is a central online registry where banks and financial institutions must register security interests (mortgages / charges) created on immovable property. Since its inception it has been specifically intended to reduce mortgage fraud — for example, multiple loans taken against the same property. CERSAI provides a public search facility: anyone (public user) can search by borrower name, asset details or address and see whether a mortgage/security interest has been registered against that property. Because registration of security interest with CERSAI is mandatory for many lenders, a CERSAI search is a practical starting point to detect whether the land underlying an apartment project has been mortgaged. The official portal and its public-search pages explain the registration and search functions. 

Quick, practical CERSAI.ORG.IN steps (what owners/associations should do)

• Visit the official portal and use Public Search → Asset-Based Search or Borrower-Based Search. (CERSAI’s site provides a guided public-search and FAQ.) 
• Search using the project address, the builder’s name (borrower), or asset details on the sale deed. Even a small fee may be charged for detailed reports. 
• If the land is shown as secured/mortgaged in CERSAI despite sale to allottees, preserve the CERSAI search report (screenshot/PDF) and other title documents: it forms key evidence of an encumbrance. 

Typical signs that a project’s land may be illegally mortgaged

• Builder delays or refuses to execute a registered conveyance deed despite demand. 
• Mutation/land revenue records and municipal/registration entries continue to show promoter/landowner as proprietor. 
• CERSAI search shows one or more security interests registered in the promoter’s name for the project land.
• News reports, court orders or RTI replies indicate the promoter has taken bank finance on the project land after the sale of flats. 

Remedies and enforcement — immediate and systemic

1. Demand immediate conveyance under RERA: The association/allottees can issue a statutory demand under RERA for execution of the registered conveyance deed as required under Section 17. RERA Authorities can direct promoters to comply and can impose penalties.
2. File complaints / cases: If the promoter continues to withhold conveyance and the land is mortgaged, owners may (a) file a complaint with the State RERA Authority, (b) approach civil courts for specific performance / injunctions and declaration of title, and (c) in cases of suspected fraud, file FIR/complaint with police or economic offences wings (if criminal misappropriation or cheating is suspected). Recent High Court decisions have underlined that retaining title after sale is legally untenable. 
3. Use CERSAI evidence to freeze lender action: A CERSAI report showing encumbrance can help in seeking urgent injunctive relief, and in approaching lenders to inform them of the statutory position under RERA (and demand a freeze) — banks generally don’t want to be lauded as lenders against property that may be subject to competing statutory claims. 
4. Approach the registrar / sub-registrar / revenue office for correction: If the registered conveyance deed exists but mutation wasn’t done, the association can present the conveyance and insist on mutation. If the promoter refuses to hand over the executed conveyance, file suit for specific performance or seek interim orders for the promoter to deposit original documents in court/with the registrar. 
5. Collective action is effective: Courts and RERA Authorities treat the allottees as a class; associations acting collectively (with membership lists, purchase documents, demand notices) have more leverage than isolated allottees. Recent judicial pronouncements in several High Courts have favoured recognizing the collective ownership of the land once flats are sold and conveyance is demanded. The unregistered and non-juristic associations for maintenance of apartments act as a blockade to conveyance.

Practical checklist for apartment-owners and juristic associations

• Keep original sale deeds, allotment letters, and correspondence with the promoter safe.
• Run a CERSAI public search (asset and borrower search) and keep/download the result.
• Check title/mutation in local revenue/municipal/registration records. If mutation is missing, demand it in writing. 
• Lodge a formal RERA complaint for non-execution of conveyance under Section 17.
• If you find a mortgage on CERSAI after sale, consult a lawyer immediately about injunctive relief and whether to approach police/EOW (in instances of alleged fraud). 

The law, the record, and public transparency

RERA Section 17 places the onus on promoters to effect a registered conveyance to the association/allottees — it is not a mere formality. The main road block to comply this has been the formation of un-registered non-voluntary consumer associations. To ensure this conveyance to comply section 17 RERA 2016, a juristic/corporate Coop society/company is necessary. The system of public registration of security interests through CERSAI adds a powerful transparency tool for citizens and authorities alike. Using the public-record checks (CERSAI and local land records), collective action by owners and decisive enforcement by RERA/courts can plug the loophole that allows builders or landowners to hold on to title and mortgage the land after apartments are sold. The law and the registry together provide both a remedy and a detection mechanism — but owners and juristic associations must actively use them. 

 By Vidyadhar Durgekar, An Advocate, An Author and a Poet 

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