How to Buy a Resale Apartment in an Under-Construction Building When the Seller Has a Loan

Core principle: Nothing final should be paid or registered until (A) the seller’s mortgage/loan is officially cleared or a bank-to-bank arrangement is done, and (B) the builder issues the transfer/allotment NOC (or signs the tripartite assignment). Banks will not disburse without legal & technical clearances.

0) Do immediate due-diligence (Buyer → before signing)

What to verify now (ask seller for originals / copies):

Allotment letter & builder Agreement for Sale, receipt ledger (all payments made to builder).
RERA registration for the project and builder disclosures.
Encumbrance Certificate (EC) for the unit/land for last 13 years (check for registered loans/charges).
Copy of any MODT/mortgage document (bank that holds the seller’s papers).
Latest property tax receipts, approved plan, and any litigation or notices.

Why: these documents tell you whether the unit is already mortgaged, whether builder approval is required for transfer, and whether there are legal encumbrances.

1) Ask the seller to get a bank loan statement & loan-closure quote (Seller → their bank)

Seller should request from their lender (immediately):

A current Loan Outstanding Statement / Settlement Letter (with a validity date).
A list of original documents the bank holds (MODT reference and registration no.).
A formal No Dues / NOC template the bank will issue after closure, and the estimated time bank needs to issue a cancellation/deed-of-receipt and return originals once paid.

This is essential because buyer’s lender will need it to clear title / disburse. Get this in writing.

2) Get your own bank sanction & pre-legal checklist (Buyer → seller's bank)

Apply and get a sanction letter (sanctioned amount and conditions). Ask the bank for a written list of exact documents they will require to clear title (they’ll do legal + technical verification).
Tell them the property is under-construction and the seller has an active loan — ask whether they prefer to coordinate directly with the seller’s bank (bank-to-bank payoff) or want documents released first. Some banks make it easier if buyer uses the same bank as seller.

For under-construction resale you almost always need the builder’s NOC / transfer letter and a Transfer/Assignment deed (commonly a tri-party transfer: builder + seller + buyer). Builder may charge a transfer fee and demand all dues cleared. Start this the moment you have buyer and seller details — builder processes can take days–weeks.

4) Sign a conditional Sale Agreement (Buyer & Seller — lawyer draft)

Make the sale agreement conditional (condition precedent) on ALL of:

Seller’s bank issuing formal NOC and cancellation/registration of MODT (or bank-to-bank payoff arrangement).
Builder issuing transfer NOC and executing assignment/transfer deed.
Buyer’s loan sanction and final disbursement.

Include timelines (e.g., seller to procure bank NOC within 15 days), an escrow/escrow-bank clause, liquidated damages, and a clause that final registration will happen only after the seller’s lender releases the charge (or buyer’s lender confirms pay-off and release). This protects the buyer if seller drags feet. (Sample wording shared below 👇)

5) TDS, stamp duty, registration — don’t miss tax steps (Buyer)

If consideration ≥ ₹50 lakh, buyer must deduct 1% TDS under Section 194-IA and deposit via Form 26QB (and issue Form 16B to seller). Confirm seller’s PAN. This is non-negotiable.
Stamp duty and registration are paid at registration; state rates vary, so budget for this. Registration is what transfers legal title at the sub-registrar.

6) Disbursement & loan payoff (Coordination among buyer bank ↔ seller bank)

Typical safe sequence (most banks follow a version of this):

Buyer’s bank confirms legal clearances and sanction; buyer signs loan documents.
At time of disbursement the buyer’s bank pays the seller’s bank the outstanding amount to close seller loan (bank-to-bank). Buyer’s bank may pay the rest to seller only after seller bank issues NOC and returns title documents. Banks routinely disburse directly to seller/builder on fulfilment of their legal checklist.
Seller’s bank issues a formal NOC / No Dues Certificate and initiates MODT cancellation and returns original title deeds (or registers a cancellation deed at the sub-registrar). Ensure the seller bank registers the cancellation deed (so the charge is removed on record).

Do not accept an oral assurance. Get bank NOC and cancellation deed registered and originals returned or placed with the new lender before you finalise money release.

7) Register sale deed and confirm cancellation of charge (Buyer & Seller at Sub-Registrar)

At the sub-registrar: register the Sale Deed and ensure that the earlier MODT/mortgage cancellation (the Deed of Receipt / deed of cancellation) is registered or lodged concurrently so the encumbrance is removed from records. Collect certified copies.

8) Post-registration follow-ups

Buyer’s bank will create its own MODT / mortgage in favour of the new lender (if the seller took a loan) and hold title documents per loan terms. Confirm bank has stamped/registered its charge correctly.
Update mutation/khata/tax records, society records and get builder to update allottee list (and handover process when possession happens). Expect society/transfer charges and documentary formalities.

Practical payment suggestions (minimise risk)

Prefer bank-to-bank transfer for the payoff (buyer bank → seller bank) rather than handing cash to seller. Banks will coordinate.
Keep a small holdback (e.g., 5% of consideration) released on receiving stamped cancellation of charge + originals. Put this in sale agreement.
Use escrow account or a lawyer’s client account for the advance until NOCs are delivered.

Big red flags to walk away or push very hard on

Builder refuses to issue transfer NOC or demands excessive undocumented extra charges.
More than one lender / multiple registered charges on EC and seller cannot produce bank statements.
Project without RERA registration or serious litigation / no progress for years, check whether promoter funds are encumbered.
Seller delays getting NOC or asks for full payment before bank confirms cancellation.

If any of these appear, involve a lawyer and insist on bank-to-bank close or verified registered cancellation before releasing any money.

Quick checklist for documents the buyer's bank will ask

Agreement for Sale / Allotment letter from builder + payment receipts.
EC (encumbrance certificate).
Latest property tax receipt, sanctioned plan, RERA registration.
Seller’s loan settlement letter, list of documents with the seller’s bank, MODT registration details.
Builder NOC for transfer / transfer-letter.

(These are standard requirements; exact list will vary by bank.)

Quick checklist for documents the seller’s bank will ask

Loan closure request letter from the seller (signed by all borrowers/co-borrowers).
Buyer’s payment details if bank-to-bank, they’ll need the buyer’s bank disbursement request letter or RTGS/NEFT reference for the payoff.
Full payment of outstanding loan as per their foreclosure/settlement letter (often including interest up to a specific date + prepayment penalty if applicable).
ID and address proof of seller (and co-borrowers, if any).
Original loan documents they issued at sanction (loan agreement copy, sanction letter, etc.) — for their internal matching before closure.
Authority letter if someone else (buyer, buyer’s bank, lawyer) is coordinating on seller’s behalf.
Any bank-specific forms for loan closure and MODT cancellation as some banks have a fixed format for discharge/cancellation request.
Acknowledgement from the builder that dues are clear, if the bank’s internal policy insists before releasing papers.

Sample conditional clause lawyers can include

“This sale is subject to the Seller procuring (a) a formal No-Dues Certificate and release/cancellation of mortgage (MODT) from [Seller’s Bank] and lodgement/registration of the cancellation deed at the Sub-Registrar; and (b) a written transfer/allotment NOC from [Builder]. The Buyer’s loan disbursement and registration shall take place only after the Seller’s Bank issues the NOC and all encumbrances are removed. If Seller fails within 21 days, Buyer may terminate and receive full refund of earnest money plus interest.”

Final pragmatic checklist with timeline

Seller → immediate loan statement and MODT details (day 0–2).
Buyer → loan application + sanction (day 0–7).
Builder → initiate transfer NOC / quote transfer charges (day 3–10).
Sign conditional sale agreement with deadlines (day 7–14).
Buyer bank coordinates payoff to seller bank on disbursement day; seller bank issues NOC and cancels MODT (disbursement day).
Register sale deed, ensure cancellation registered and originals returned / lodged with new bank. (day 1–7 after disbursement).

Timelines vary, so get all deadlines in writing in the sale agreement.