Trap 22. ‘Deposit Token Money To Book Property Quickly To Bag The Deal’

Usually, when a real estate transaction gets finalised, you need to pay token money to seal the deal upfront. It’s unofficially understood that if you deposit this amount, the seller will wait for you to do the rest of the formalities, and not talk to the other buyers.

This agreement may or may not be documented, which is why depositing token money in a hurry can be risky. There are many risks involved. In the case of an under-construction property, there have been cases of fly-by-night operators disappearing after making collections from multiple people; the project not taking off due to lack of funding; or other encumbrances. In the case of resale properties, there is the risk of an unclear title or pending dues or damaged property.

If you are not careful and don’t take enough time to consider these risks, you may get stuck in unfavourable contract terms, or end up with an unsuitable property. Worse, when you realise there are problems later, your money may get stuck, as refunds may not be easy
to come by.

Says Nishant Datta, an advocate at the Delhi High Court: “Cases of fraud abound in real estate transactions. Buyers sometimes become easy targets as they overlook running vital checks, such as title search reports and document verification.”

So what should you do? Ensuring the title is valid is essential for buyers, especially if it’s a resale property, to confirm the seller’s ownership and that no liabilities or encumbrances burden the property. With land records being digitised, title searches can be easily conducted through the state’s official land records website. Other essential documents to verify include records of rights and documents related to land zoning regulations.

Apart from these, you must verify the seller’s identity and inspect the property physically. “Sometimes, buyers deposit token money without visiting the property and properly checking it, and then find that the actual property does not match the description the seller gave. More importantly, some overlook the contents of the contract being signed and also omit to seek legal opinion thereon, thus getting their hands entirely tied,” says Datta.

In the case of properties covered under the Real Estate (Regulation and Development Act, 2016 (Rera), a written agreement for the sale must be registered to enable the seller to receive the token money to minimise the chances of fraud. All projects with a plot size of at least 500 sq. mt or eight flats must be registered under the Rera Act. Complications often arise in the case of non-Rera properties because often it is after the payment of token money that parties enter into a formal “agreement to sell”, outlining the manner of progression in terms of the rest of the payments, obligations of parties, such as taking permissions required before the sale deed, timelines for executing a registered sale deed, and so on.

To make it clearer to the unversed, an agreement to sell is the initial agreement before the payment of full consideration. A registered sale deed is executed in the office of the sub-registrar either after or at the time of full payment. A sale deed is a document that formally transfers the property title from the seller to the buyer.

The “agreement to sell” must contain clauses for token money refund, indemnity clauses, property description, terms of payment schedule, possession date, clauses for withdrawal from the deal, penalties for breach of contract, among others. These clauses can protect the buyer’s interests in property transactions and a legal counsel is of utmost help to draft it.

Says Datta: “In cases where the buyers find themselves executing unregistered agreements or informal MoUs or ‘mere bayana’ receipts, they must take extra precautions, such as involving witnesses, sharing documents through electronic media with the sellers and brokers, and maintaining or creating a record or proof or trail of the transaction.”

You can mitigate the risk of not getting a refund as well. “Routing through or parking payments in escrow accounts is perhaps the safest way to conduct property transactions, though haste, even here, should be avoided as the risks are merely mitigated,” says Datta.

Asking the right questions and getting documents vetted can make your transactions hassle-free.