Buying NRI property through PoA? Take these precautions As a buyer if you are planning to buy a property from an NRI through PoA, you should be mindful of certain risks involved as rules and regulations governing such transactions are a bit complicated
Every day, thousands of property transactions take place in the country, of which a few are through power of attorney (PoA).NRIs living abroad face many practical difficulties in coming to India to sell their property and complete all the legal formalities which can often take from few days to few weeks. It's not only the difficulty in arranging a long leave but also involves significant travel cost. This why many NRIs prefer to sell their property through a Power of Attorney (PoA) by assigning a person to do the property registration formalities. However, as buyer if you are planning to buy a property from an NRI through PoA, here's why you should understand the risks of doing so and decide whether you should go opt for this route.
The risks of using PoA
Normally, a PoA is signed by someone who, for a variety of reasons, is unable to carry out their transactions themselves. For instance, if the principal resides abroad, or if he is bedridden or there is any other plausible reason for being unable to perform the duties on his own. However, a PoA is not an instrument of transfer with regards to any right, title or interest in an immovable property. It is only a creation of an agency whereby a person authorises another person to do the acts specified therein, on his behalf.
PoA, is not a valid way to transfer property as mutation does not take place in the property records.. There have been scores of cases wherein a property transaction was challenged based on errors or inadequacies in the execution of the PoA by an NRI.
"Independently, PoA transactions carry an inherent risk as the owner is not the seller of the property. As the Indian Registration Act does not make a PoA compulsorily registrable, people often misuse this clause," says Hardeep Sachdeva, Senior Partner, AZB&Partners.
A PoA executed by an NRI requires extra precaution as the seller does not reside in India. A small lapse or callousness can land the buyer in deep trouble. The best way is to ask the NRI seller to be personally present at the time of registration of the property. However, in case that is not feasible and you have to do it through PoA, then you must take the following precautions.
Also read: 6 reasons why you should not buy property via Power of Attorney
Power of Attorney should be registered
In some cases, a PoA holder simply notarises the instrument instead of registering it. "A notarised PoA is different from a registered PoA. A notarised POA is legally not valid in India. A PoA executed by an NRI on foreign soil should be registered in the sub-registrar's office," cautions Nitin Bhatia, a real estate expert. He adds that the PoA should also be attested by the Indian Consulate/Embassy concerned and such PoA should be used within three months from the date of its execution.
"If the sale deed is being executed by someone acting under the PoA then one must ensure that the instrument is properly registered," says Bharat Chugh, former judge and advocate, Supreme Court.
Adds Sachdeva, "The PoA should be registered with the registrar of sub-assurances in whose jurisdiction the property is situated. Furthermore, we should examine the reason for the PoA, the authenticity of the PoA and whether there is any dispute or litigation between the owner and the PoA holder."
Check for essential clauses
Another important aspect is to ensure that the title of the property is clear, i.e., the principal's name is reflected as the owner in the revenue records. "Ensure that the principal has a valid title to the property and the principal's name is mentioned in all relevant title deeds, land records, etc," cautions Chugh. One should also check that that there is a single PoA holder. There have been numerous cases of frauds where the same property is sold to different people by different PoA holders.
Chugh adds that one should also ensure that the signatures and photographs of principal and PoA holder are also affixed. If the NRI seller is unable to make it to India for the sale of the property due to some valid reason, the buyer should insist the NRI seller to include the said reason in the PoA. In short, the reason for the execution of the PoA should be clearly mentioned in the document.
The PoA holder has the authority to sell the property through the PoA. In case the instrument is time-bound, then, the prospective date of termination of the PoA and if there is no mention of the time-limit then the same must be mentioned. "The PoA should not be very old and if it is, then one must ask for a fresh PoA or confirmation from the owner if it has been terminated or not," says Sachdeva.
Transfer money to NRI owner, not PoA holder
It is a widespread misconception that the payment towards property transactions should be transferred to the PoA holder. "A buyer needs to understand that the power of attorney holder is only a representative of an NRI seller. The resident Indian buyer should make payment only to the NRI seller in their NRE/NRO account. An NRI seller can authorise a PoA holder to accept payment on his behalf but cannot authorise payment to the PoA holder. Even if the NRI seller authorises the PoA holder to receive direct payment, the buyer should avoid such property transactions. It may land the buyer in tax trouble," warns Bhatia.
He adds that in case of multiple NRI sellers, the payment should be transferred in the proportion of ownership in the property to each seller and each of the sellers should execute a separate PoA.
Add indemnity clause in sale deed
Every property transaction is exclusive. Therefore, a buyer should safeguard his/her financial interests by including a blanket indemnity clause in the sale deed. "To avoid being caught on the wrong side of the law, one must ensure that the sale deed clauses are in accordance with the terms and conditions of the PoA so as to remove any possibility of legal or tax issues at a later stage," says Bhatia.
To conclude we can say that a buyer should avoid any property deal if the seller is an NRI and can't be present in India for the transfer of title as rules and regulations governing such transactions are a bit complicated. One should be mindful of the fact that Indian law or taxmen will have no jurisdiction if the NRI conceals facts or misuses the system but the buyer residing in India cannot escape the tentacles of the law.
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Buying house via Power of Attorney? Read this
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What is a PoA?
A Power of Attorney (PoA) is a legal document through which a person nominates another person to act on his behalf. As against a Special Power of Attorney (SPA), in a GPA (General Power of Attorney) the principal grants a more comprehensive power of attorney to his/her agent. Such a GPA empowers the agent to carry out a large variety of jobs/transactions and not just a specific job. For instance, this may include payment of utility bills, collecting rent or carrying out all bank-related work while acting as the representative. For transfer of title through PoA, buyers generally insist on GPA.
However, due to the financial benefits it provides to both the buyer and the seller, selling a property through a PoA has become a common practice in Indian cities.
Does not give ownership rights
If one buys property through the PoA then mutation will not take place in municipal and revenue records as a PoA doesn't give ownership rights to the agent in whose favour the instrument has been made. In other words, any person who buys a property through a PoA may have the 'possession' of the property but in the absence of a genuine registered sale deed he would not be considered as the rightful legal owner of the said property.
More chances of fraud
There have been many cases in Delhi and neighbouring cities where buyers entered into a transaction with the sellers through PoA but later found many others claiming a stake in the property, thus, leading to protracted court battles. This mostly happens when the property transacted via PoA is not registered. When we give power of attorney to someone, it's like giving your locker keys to that person. If one wants to look for past transactions of a particular property at a registrar's office, the ownership of only those properties is reflected on which stamp duty and registration has been paid.
PoAs being misused in buying/selling property
Under the notion that a PoA gives them proprietorship rights, many people replaced sale deeds with these. Buyers complete a property transaction after signing an agreement to sell, get a PoA from the seller and a get a Will made. This all is done without the payment of stamp duty or registration as per law. Thus, PoAs are commonly exploited in the real estate sector, especially to park black money, brokers say.
Getting clear title on property will be difficult
There have been instances where people have bought properties through PoA butat a later stage when they tried to register their property by paying the full stamp duty, the original seller charged a hefty amount to come to the registrar's office and sign the sale deed.
This story originally appeared on: Muscle & Fitness - Author:Tax Cognition
