The Importance of NEC in a Loan Process and Steps to Apply for the Certificate

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A non-encumbrance certificate (NEC) certifies that the property that is being offered to bank as security, is free of any debts. In layman’s words, the NEC certifies that the property in question entirely belongs to the person and not associated with any financial institution or bank. Encumbrance is a cost or charge created on a property, if it is bought with finances borrowed or is offered as a collateral or security for another loan.

Thus, an NEC informs that the property is not mortgaged and is without any burden of debt or security, or other obligation. For instance, if you had taken HDFC loan against property on your house, then you cannot apply for new loan on the mortgaged property, until the property loan is successfully closed. The authority will pass an NEC if the property loan is closed and the property is free of any debts. Otherwise, relevant charges will be filed on the property.

Issuing of an NEC

All the government authorities and financial institutions ask for a non-encumbrance certificate for up to 12 to 30 years. If this certificate is not availed, then banks/NBFCs will not provide you the loan. NEC is issued from the start of a new financial year, i.e. April 1 to March 31, no matter when you apply for the certificate. It is issued in either Form 16 or Form 15.

It is issued in the Form 16, if the property does not have an encumbrance is the specific period. If there are charges on the property, then Form 15 is provided. Form 15 specifies the charges and their nature, registration details, and the registered property documents.

Who Issues an NEC?

It is the Tahsildar (the tax officer and revenue inspectors) who issues the non-encumbrance certificate. These officials secure taxes from a land. These taxes are known as ‘tehsil’ and are relevant to land revenue. Tahsildar is also called the Executive Magistrate of the land with which he or she is associated.

You can get a computerized encumbrance certificate in Andhra Pradesh, Orissa, Telangana, Kerala, Tamil Nadu, Gujarat, Pondicherry, and Karnataka. In other states, you can get only hand-written certificates.

Steps to Apply for a Non-Encumbrance Certificate

Below given is the process to apply for an NEC:

  1. Fix Rs. 2 non-judicial stamp on the Form 22 and send the application, with complete address, to the tahsildar. Give the reason as to why you require the certificate in writing, and attach it with proof of residence such as driving licence/ration card/Aadhar Card, etc.
  2. Provide details of property ownership, such as the property location, survey number, measurements of the property, etc.
  3. Hand over the application with a fee paid annually to the jurisdictional sub-registrar’s office. This office must be the under which the property comes.
  4. The checking process of the report takes about 15 days to 30 days. The tahsildar will review the property report and details of the owner. He/she will issue the NEC, if the report is found favourable.
  5. The non-encumbrance certificate is issued in the language that the registrar maintains. But, by paying an additional amount, you can always request for the English translation of the certificate.

Thus, before you apply for a home loan or a loan against property, make sure you arrange the non-encumbrance certificate.