Lost Property Documents Permanently Damage Asset Values: Regulatory Solution Required for Fair Deal to Borrowers
Easy and reliable availability of home loans or mortgage finance, with attractive tax breaks, has led to a boom in home ownership in India. Home loans have grown at a strong 17% over the past decade and have the lowest incidence of bad loans among all classes of loans, says a Reserve Bank of India (RBI) paper. Competition among lenders has ensured that the process of assessment, disbursal and loan closure is smooth, streamlined and works well for customers—until it doesn’t. When something goes wrong, you realise that there are no clear rules or standard operating procedures (SOPs) to mitigate the damage; and you are on your own.
A home or apartment is still the biggest investment, for most Indians. So, one can only imagine the plight of a borrower who discovers that the lender has lost the original sale deed, or one of the crucial documents. 
A simple Google search shows that a lender losing key documents, pledged with it, is not uncommon. The numbers are small enough to fly below the radar of regulators; but victims end up fighting legal battles for redress. Also, lost or misplaced property documents is not limited to home loans; lenders have lost documents pledged with them for education loans and commercial loans as well. 
One would assume that RBI and the National Housing Bank (NHB), as regulators, would have issued a circular or directive with a clear, time-bound process to be followed by a lender who misplaces or loses a property document. None exists. Instead, every victim is pushed through a harrowing process of fighting a legal battle.  
Here’s what happened to Ananth (name changed), who took a loan from ICICI Bank to buy land in 2002, currently valued at over Rs2 crore. When he approached Life Insurance Corporation (LIC) in 2006 to construct a home on the land, he discovered that ICICI Bank had misplaced two original sale deeds of 1988 and 2000 (in the chain of transfers leading to his purchase). The Bank issued an advertisement about the lost documents, applied for duplicate title deed and granted him a construction loan and a top-up loan, leading him to assume that all was well with the documentation. 
In 2022, when Ananth decided to sell the property, two prospective buyers had their loan applications rejected (by HDFC Bank and Axis Bank, respectively) because the papers were not in order. Both banks advised the potential buyers not to purchase the property. So, he is back pleading for help with the lender who lost his papers!
This is not the first time this has happened with ICICI Bank. As recently as in February 2020 (ICICI Bank Ltd vs Rajesh Khandelwal, 2020), ICICI Bank was ordered by the national consumer disputes redressal commission (NCDRC) to compensate a victim of lost documents. NCDRC noted: “When, by its own admission, it lost/misplaced the original document of the Complainants, it should have, on its own, in the normal won’t of its functioning, got the document reconstructed, handed over the reconstructed document to the Complainants, with courtesy and apology, as also conducted an internal inquiry to fix responsibility as well as undertaken systemic improvements for future.” Pertinently, NCDRC said the revision petition was ‘patently ill-conceived and totally bereft of merit’ and, hence, dismissed with stern advice of caution to the Bank and direction with regard to timely compliance of the order.
If our regulators prescribe a time-bound process to be followed for lost documents, Ananth and others like him would not have a harrowing time; but problems faced by disaggregated individual consumers rarely make it to the attention of policy-makers, despite numerous consumer courts’ verdicts in favour of consumers. Even path-breaking orders of NCDRC have not translated to a policy that puts the onus on the lender to follow due process to rectify the title and compensate the victim for loss in property value. 
Rectification Process
Here’s what you need to ensure, if a lender loses your property documents. First, obtain a written acknowledgement (signed and sealed) that the lender has lost the title deeds or any part of the original documents pledged with it. Second, file a first information report (FIR) with the police about the loss of documents; third, issue a notice about the loss of documents in three (English, Hindi and regional language) newspapers; fourth, use these filings to obtain a certified copy of the title deed from the sub-registrar’s office. Once you have the certified true copy (which will take time and payment of a fee), obtain the latest ‘encumbrance certificate’ from the registrar as a further precaution to establish your ownership of the property. Finally, submit copies of the complaint with your housing society to prevent further misrepresentation or fraud.
All this ought to be done by the lender at its own cost; but do not delay the process if the lender refuses to cooperate and do not be misled by claims of documents being ‘misplaced’ rather than lost. Complaints have to be filed in a time-bound manner or the law of limitation could kick-in, while you place your faith in the lender finding the misplaced documents and you are stuck with a devalued asset. 
There are plenty of examples where banks have denied responsibility for losing the documents and fight their customer all the way to the apex consumer forum. 
Court Rulings
1. State Bank of India (SBI) vs Amitesh Mazumdar (NCDRC directs SBI to pay Rs 5 lakh compensation for losing title deed of a customer), decided by NCDRC in January 2020 (RP No 2732 of 2019). In this case, SBI said it was willing to get a certified copy of the title deed after issuing newspaper advertisements and provide a letter acknowledging lost documents but it challenged the compensation ordered by the lower consumer forum. Far from helping, SBI deployed its legal resources to prolong the harassment of the victim by challenging the consumer court order before the apex forum.  
In a landmark order, NCDRC upheld a compensation of Rs5 lakh and Rs30,000 in costs. Importantly, the apex forum observed that erosion in the value of property would persist even after rectification of title deeds because prospective buyers would worry about buying such asset and lenders would hesitate to lend against such assets. It observed that “…the compensation awarded by the District Forum and maintained by the State Commission may not be sufficient to make up such erosion in the market value of the property.”
2. A second case decided by NCDRC in August 2020 is Can Fin Homes Ltd vs Shri J Bhaskaran https://indiankanoon.org/doc/130050098/, where, again, justice VK Jain has emphatically stated that even if the lender gets a copy of the title documents by following the process outlined above, buyers will be reluctant to pay full market value when the original title deeds were lost. He says, “The erosion in the value of the property if it is to be sold without the Title Deeds, would be substantial and in fact even the compensation awarded by the District Forum and maintained by the State Commission may not be sufficient to make up such erosion in the market value of the property.” Hence, the court upheld the compensation of Rs9 lakh and litigation cost of Rs5,000 on the property valued at Rs85 lakh (which the court said may now be above Rs1 crore). NCDRC pointed out that the compensation granted is not even 1% of the property value.
3. In a third case, decided in February 2022, a media report (https://timesofindia.indiatimes.com/city/ bengaluru/bank-loses-mans-property-papers-ordered-to-pay-25k/articleshow/89513866.cms) says that the Bengaluru consumer forum ordered a compensation of Rs20,000 and costs of Rs5,000 on a loan of Rs2.5 lakh availed by the victim. The lender was also asked to furnish certified copies of the documents at its own cost. 
4. In April 2018, the Maharashtra state consumer disputes redressal commission had ordered Standard Chartered Bank to pay a compensation Rs1.15 lakh as compensation to a Mulund resident and Rs50,000 for mental agony (plus Rs5,000 as costs and Rs10,000 as cost of appeal), in addition to handing over documents in three months. Interestingly, the Bank would pay the victim Rs50,000 every month together with interest at the rate of 9% until it hands over the certified copy of the original documents. The loan in this case was Rs9 lakh and there is an acknowledgement that the title will remain defective. 
Title Remains Defective
The two NCDRC orders confirm a chilling fact—a certified copy does not make for a perfect title and the erosion in property value persists. Further, there is no clear formula for compensation in loss of property value which is not necessarily related to the size of loan. Anyone who has ever fought a case in India knows that the costs granted by NCDRC do not even begin to cover the time, effort involved and legal fees, even at a consumer forum. When documents pledged for business loans are lost, the cost and damage is even greater. 
In a fair system, RBI ought to mandate that banks follow a time-bound process, provide the borrower with an affidavit-cum-indemnity-bond (ACIB), in addition to a certified true copy (to ensure there is no erosion in property value), or prescribe a compensation formula for the borrower. A bank, protected by liability insurance, is well-placed to provide an indemnity and there is no reason why a borrower should be fobbed off with a meagre compensation calculated on property value at the time of closing a loan. 
Coming back to the ICICI Bank case, a former managing director (MD) of the Bank shares the NCDRC view that “a loss in value would be a given.” He suggests that the Bank should pay Ananth the difference between the sale price and fair market value. The Bank has assured us that it ‘sincerely empathises’ with the customer and will close the process in three weeks. If done, this particular case will close without extraordinary harassment; but it is high time that our regulators prescribe a time-bound process, compensation and solution to this important issue. 
1 year ago
Hello Moneylife team. The bank is not returning my original documents. They have been asking more time for every email that I have been writing to them to return the property documents. Could you please let me know how should I approach this? I have already raised a complaint with RBI Ombudsman a couple days ago. Want to know what other things I can do to speed up the process and resolve the problem for good?
1 year ago
Moneylife is perhaps the lone voice in the country raising this extremely pertinent issue. Whey can’t RBI mandate that the bank at fault should make up by paying the difference between assessed value at the time of loan sanction and market value?
2 years ago
Very apt writing Sucheta. Its high time that this issue is paid enough attention by government and RBI.

Like stocks / bonds / insurance policies, etc. we should have a system for dematerialisation of housing papers as well. It will not only solve most fraud related problems but will also make shifting of home loans and buy-sell process much easier.
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