Friday, 4 April 2014


Fraudulent activities are not un-common in the dealings of human beings. Housing finance is no exception to this.To attract the people financial companies and banks are now competing with each other and are relaxing their lending procedures and processes. We read in news papers that home loans are sanctioned within 24 hours and upon verification of minimum documents.Services of external agencies are utilized for processing loan applications.Services of direct selling agents are utilized to attract the customers.The hallowed precincts of the bank have given way to brokering shops run by direct selling agents.All these factors have become instrumental in housing finance frauds. The magnitude of housing frauds can be ascertained by analyzing few types of frauds noticed by various banks. They are:

Fabrication of income documents:
For consideration of housing loan, banks do insist the income proof of the borrower.The income proof documents mainly consist of salary certificate, salary slip, income-tax return and balance sheets.The borrowers normally fabricate the documents which depict their income. Banks are often fooled by inflated salary certificates because they fail to cross check such certificates with the employers of the applicants.These certificates are often certified by unauthorized persons.The reason for such frauds could be that the banks do not insist on the documents being sent by the employer by post or courier. Also the banks do not write directly to the employer for these documents. Reliable methods are sacrificed at the altar of speed.

Some preventive steps could be:to cross check the salary slip with the employer; uploading on the website of the income tax department the list of income tax payers; comparing the salary amount with the bank statement; to have a personal interview with the borrower by the Manager.

Fraudulent cheque/demand draft encashment:
In many cases, the bank officials give cheques/demand drafts to the borrower/vendor at the venue of the bank itself before registration of the sale deed in favor of the borrower and such cheques are sometimes delivered to third parties or middlemen.When such cheques or demand drafts fall into the hands of third parties they encase them by opening false bank accounts and defraud the banks.There are also cases where the properties have been registered in the name of parties other than the borrower.Some preventive measures could be :to hand over the cheque to the vendor at the office of the sub registrar when the sale deed is registered and the deed should have the full details such as cheque number, date, amount and the drawee bank. Alternatively, cheques may be issued in the banker's name with the bank account number of the vendor.

Forging of title documents
As a rule, advocates never certify the authenticity of title documents but only trace the title.This becomes more complicated when the bankers forward only the Xerox copies of the title deeds for opinion of the advocate.Till payment of the loan amount neither the bank nor the advocate insists for production of the original deeds.Generally,to give effect to such frauds,colored Xerox copies of documents such as encumbrance certificates are created. Fake stamp papers are used. Such forged documents are hard to be distinguished from the authentic ones.However,an experienced advocate may be able to detect a forged document when he minutely examines the document to check the place of registration and the stamp duty paid.

Further, tracing of the title should go to the roots of the title and not be restricted to 13 years.It is necessary to examine the original title deeds sufficiently in advance and should not be postponed up to the date of registration.There should be direct interaction between the vendor and the banker.A request should be made to the advocate on the panel to search and verify the title of the vendor from the records of the sub-registrar's office. Remedial measures could be that the information of the black listed builders and developers, if any, should be shared by all the banks; the documents such as agreement for sale should be in DEMAT form;The authenticity of stamped paper, documents and registration receipts should be verified by banks at the sub-registrar's office.

Over-valuation of properties:
Generally, some borrowers conspire with the vendors/valuers to inflate the market value of the property.Various non-existent expenditures such as additional amenities,fixtures, legal charges, society advance and maintenance charges are cited. Advances are released on properties which have been overvalued leading to over finance. Because of this, the banks are not able to realize the amount advanced while the borrowers are least bothered about clearing the debt.Remedies could be utilization of services of two independent values for valuation of property worth more than Rs. 25lakhs; introduction of certificate course for approved valuers; development of in-house expertise by banks for the accurate valuation of properties.

Multiple financing:
Some fraudulent persons produce fabricated documents to different banks or housing finance agencies in respect of a single property to obtain loan from each bank without the knowledge of the other in respect of the same property.Remedies to prevent such frauds could be to introduce the DEMAT format for sale agreements, insisting for production of original title deeds by the lending institution, introduction of registration of mortgage deeds.

Cancellation of booking for flats:
Another type of fraud noticed is that some of the borrowers cancel their bookings for flats within a couple of months after obtaining the loan from the bank and obtain the refund of the money paid towards the flat directly from the builder without the knowledge of the lending bank. In these cases, apart from personal liability of the borrower, the banks do not possess any security for the amount which has been advanced.One way to curb such mischief is to insist for an undertaking from the builder stating that in case the booking for any flat by the borrowers is cancelled, the advance amount will be directly remitted to the bank.In addition, it is better to pay the initial loan amount directly to the builder on behalf of the borrower.

Fake or duplicate title deeds:
In this type of fraud, the borrower of the bank sells his property with the help of duplicate or fake title deeds before clearing of the loan amount though legal title deeds over the property are deposited with the bank or housing finance company.To prevent this type of fraud, banks are now getting the memorandum of deposit of title deeds registered so that the fact of mortgage of property is reflected in the encumbrance certificate.

Utilizing housing loan for commercial property
Housing finance companies and banks grant loans at concessional rate of interest in respect of residential buildings.In addition, rebate is also available to the borrower on such housing loan. In some cases, the housing loans obtained by the borrowers are actually used for purchase of commercial property.To avoid such abuses, it is suggested that there should be inspection and verification of the property by officers of the bank to find out whether it is residential or commercial property.

Outstanding loans from the builders:
There are also cases where the builders sell the property without repaying the loan obtained from the bank or housing finance company.The loan availed by the developer or builder requires to be verified by the banks at the project clearance level. At the time of appraisal, the banks should consider only the original documents and not any other type of document. An analysis of the above would go to show that there are different kinds of frauds adopted by people regarding housing finance and no straight jacket formula is available to remedy such frauds. However, alertness and strict adherence of the procedure laid down could reduce fraudulent banking transactions.

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