Valuation of properties offered as collateral securities to the banks

ROLE OF PANEL VALUER

While granting the finance to the applicant, depending upon the necessity, the Bank insists them to create collateral securities by the way of equitable mortgage.

According to the Transfer of Property Act (Section 53). ‘A mortgage is the transfer of an interest in specific immovable property for the purpose of securing the payment of money advanced/ or to be advanced by the way of loan, an existing or future debt of the performance of an engagement which may give rise to a pecuniary liability’.

Finance is advanced by the Banks by depositing the Title Deeds of the property as security. Acceptance of the deed as security depends upon the legal opinion given by the Panel Advocate. On the basis of legal opinion and scrutinising the basic documents like Title Deed, Tax Receipts etc. Bank sanctions loan to the clients. Nobody does the site inspection. The physical inspection is very much required as there are occasions that the documents created for mortgage have no connection with the actual property of which collateral security have been obtained.

Panel Valuer is the only person, who is physically inspecting the property under mortgage and depending upon the site conditions, prepares his valuations reports and issues the valuation certificate. When a property is valued for the purpose of creating equitable mortgage to the Banks, the responsibility of the Panel Valuer is much more and he takes extra care. He observes many vital factors like complications in documents, involvement of others’ right in the property possible litigation, encroachments, right of ownership etc. Apart from involving mere technical knowledge, he applies his intelligence, shrewdness and analyses practical and critical site conditions. For this, he goes through the following stages and prepares his final Valuation report.

1.        Perusal of Documents

2.         Physical Inspection

3.         Assessment of Value

1)          PERUSAL OF DOCUMENTS: The following documents are perused before going for the site inspection.

a)          Title Deed – Name of the owner, the date and Registration No. of the Title Deed, Survey No., Ward No., Village Name, etc. The size and extent of the site, any percentage of shares value is involved. Any common share (with the neighbors) is involved, any easement right is mentioned. Age of the building if mentioned.

b)          Approved Drawings if available: The year of approval. The owner’s name, Survey No., Ward No., Block No., Village Name etc.

c)           Tax receipt: Name of the owner, tax amount, Tax Assessment No. Door No. Street No., etc.

2)          PHYSICAL INSPECTION: Since no property is sticked with the label bearing Survey No., Owners Name etc., physical inspection is of utmost importance as far the Realistic Market Value is concerned. Panel Valuer is the only competent person to check the property physically and certify, whether the property offered for inspection is the same described in the Title Deed which is being pledged to the Bank.

During his site inspection Panel Valuer observes the following:-

·     The size and extent of the plot.

·     Location with reference to the boundaries.

·     Incorrect extent mentioned in the document purposely or by oversight.

·     Whether the plot is situated in a ‘Land Locked Land’ situation?

·     Whether the whole or part of the land is notified for acquisition by Government or any statutory body?

·      Whether the local Authority has declared the particular zone as any special zone?

·      Any problems are there with regards to Urban Land Ceiling?

·      Is there any encumbrance?

·      Will there be any problem in transferring the conveyance of ownership?

·      Are there any common shares in the property?

·      Whether the drawings are approved for which the land was purchased?

·      Whether the environmental conditions is good or not?

·      Is there any nuisance due to environmental pollution?

·      Is there any legal problem existing in the Title Deed?

·      Is there any easement right mentioned in the Title Deed?

·     Character and classification of locality i.e. Residential/ Commercial/ Industrial etc.

·      Development of the surrounding areas.

·      Is the locality subjected to frequent flooding?

·      Feasibility to the civic amenities like school, hospitals, offices, markets

·      Level of land with topographical conditions, shape of land, type of use to which it can be put.

·      Any restrictions of use?

·      Whether leasehold or freehold land?

·      Is it in town planning approved layout?

·      Road facility, water potential, under ground sewerage systems etc.

·      Commercial potential of the property any other sentimental/ social issue which may affect the value. In Case of Buildings

·      Is it an unauthorised construction?

·      Is it constructed violating the local building rules?

·      The specifications of the building in detail.

·      How is the condition of the building?

·      Is it being maintained well?

·      The purpose for which the building is used?

·      Whether the building is owner occupied, tenanted or vacant?

·      If it is tenanted, any problem is apprehended in vacant

·      Is the building constructed /extended in encroached area?

·      How is the quality of workmanship?

·      How is the strength of foundation?

·      What is the further life of the building?

·      Side and rear compound walls – is it being owned by this owner or do neighbors have many share?

·      Has the building got common wall?

·     The services (like water supply arrangements, drainage arrangements, Electricity deposits, Electrical fittings etc. and compound wall).

3)   ASSESSMENT OF VALUE: The Panel Valuer assesses the prevailing Market Value of land after analysing various factors like location, size, shape, demand etc. He analyses the factors favoring extra value and the affecting factors for negative values, assessing the depreciated value of extra items, the depreciated value of amenities, miscellaneous structures etc. Before finalising the value Panel Valuers ensures that the provisions in the various local laws do not affect the value of the land/ structures. Some Banks follow the procedure of sanctioning the loan first and ask later for the valuation Certificate from its Panel Valuer.

In one case, when an applicant seeks the sanction of additional loan, he said he will give a vacant site of sufficient extent worth of one crore. The manager of the Bank inspected the property,  went to the Registrar’s Office, enquired about the Guideline Value, got himself satisfied about the worthiness for one crore, and forwarded the proposal. The central office sanctioned the loan. Before signing the papers, the Bank requested the Applicant to get a Valuation Certificate from the Panel Valuer. The Valuer certified the Market Value as 50 Lakhs because in that place the Market Value was less than the Guide line Value. To avoid such type of consequences and complications some basic suggestions for Banks are given below.

1.           The Banks must have their own Panel Valuers to safeguard their interest in this regard.

2.           The Panel Valuers may be permitted to peruse the documents which are in the custody of the Bank. Perusing the documents is the P/Valuer’s duty if undisputed value is required.

3.           When the clients are directed to the P/Valuers the Bank may request him to carry out the valuation on their behalf. This procedure will avoid many problems.

4.           Be cautious while accepting the Title Deeds involving undivided share of land alone.

5.           Verify whether property under valuation involved more than one Title Document.

6.           The Bank Officer in charge must have knowledge in the Field measurements like Guntha, Acre, Areas, Hectare, Sq. meters, Sq. feet, Sq. Yards etc.

7.           Only the prevailing Market Rate is to be adopted and not the Guideline Rates.

8.           Before considering the initial proposals, kindly do not insist the P/Valuer to certify the value assumed at the time of the proposals.

9.           The Panel Valuer can be mutually consulted and his expert opinion may be sought in case of any complications.

10.       Asking the applicants to obtain the valuation certificate form the Revenue officials is not considered as the right procedure. The Revenue people are the authority to identify the property correctly or to certify the Survey No. etc.

Finally, remember the basic principle of valuation - value varies with the purpose. Value is a function of date purpose and place. Hence each valuation is a typical one and depending upon the merits of the individual case the Panel Valuer applies his mind, analyses the Pros & Cons and do the authentic, accurate, unbiased, undisputed and unquestionable Valuation to safeguard the interest of the Bank.

-      Adv. R. P. Rathod.

Advocate High Court, Mumbai.