Is due diligence by banks sufficient when buying property?

livemint.com:

Khosla ka Ghosla. In real life, too, it’s not uncommon to uncover issues related to properties after you’ve seemingly made a rightful purchase. Sometimes a property is sold twice, to different parties, or the title deed is not clear, or relatives might come into the picture.

In fact, National Crime Records Bureau data shows that more than 7,000 such cases relating to ‘land issues’ were recorded in India in 2022 alone. Such problems can get compounded when buying land in an area you’re less familiar with, say, for example, someplace 200km from where you’re staying. You’re greatly increasing the chances of your getting cheated as well.

Amrit Kabra, a 30-year-old chartered accountant residing with his family in Kolkata, invested in property in Bengaluru’s Whitefield area. To avoid the usual legal hassles, he used an easy fix. His family applied for a loan of ₹25 lakh from HDFC Bank even though they were ready to pay the full amount upfront.

The logic was simple: banks do their due diligence on the property before sanctioning a loan, and he would get to know of any pending issues beforehand. He also structured the loan such that he could claim the maximum tax deductions on the home loan. “Even if you don’t need to, you can get a small loan so that the headache is lifted," said Kabra, who now lives in Mumbai.

To be sure, while the family eventually didn’t end up taking the loan as the bank wanted a personal guarantee, it had done its due diligence and was willing to sanction the loan, thereby assuring Kabra that there were no pending litigation issues. The property was bought in the name of the family office along with other associates. Swapnil Gholap, 37, did something similar.