Rachna (Director) 18 August 2012

Insurance undertaking towards bank - in lien to bank

Hi need urgent help from my lawyer friends. I am in process of acquiring a home loan through Axis Bank for a under construction property I have bought. The loan is approved however now at the time of disbursement, I have been asked to sign a few documents by them which are unclear to me. First of all they are asking me to sign a general undertaking document the purpose for which is to ask the owner to buy insurance on the said property in lien of the bank. My arguement to them is that my property is already mortgaged with them and they hold all rights over my property and also there is a clause in my builder/buyer agreement which states that insurance of building will be bought which will be payable by the owner. This according to me covers the fact that building/ part of the building is insured by me as a owner and since as per my bank agreement I am liable to pay my dues to bank I am capable of paying this by taking this insurance. Why would I need to specifically take insurance in Lien to the bank? I would like to know from my friends if there is any foul play by the Bank here since I asked them to send me this explanation on a letter head and they are not sending it to me on official record. They saying we have mentioned it in our sanction letter which should suffice. I need help on this on a urgent basis. Please do help. Let me know if you would like to see the sanction letter to see the fine print?

Reply Follow

4 Replies

Advocate Rohit (Advocate) 18 August 2012

Dear Rachna,

Insurance is always taken by the person who has an interest in the property. therefore the, Bank is correct in asking you to get the lien of the Bank on the insurance policy as the bank is providing loan for the said flat.

Now suppose, due to natural calamity the building collapses. in that case whom will the insurance company will pay the claim?????

The time till the borrower doesnot repay the loan competely, the bank or the financial institution shall have the lien on the insurance policy for the said mortgaged property.

Incase of any further query you may call on 9324538481.

Regards,

Advocate Rohit Dalmia

Mumbai

Advocate Rohit (Advocate) 18 August 2012

Dear Rachna,

Now suppose, due to natural calamity the building collapses. in that case whom will the insurance company will pay the claim?????

The time till the borrower doesnot repay the loan competely, the bank or the financial institution shall have the lien on the insurance policy for the said mortgaged property.

Incase of any further query you may call on 9324538481.

Regards,

Advocate Rohit Dalmia

Mumbai

Rachna (Director) 18 August 2012

Thank you Rohit for your prompt help. My concern is that the undertaking they are asking me to sign does not imply the contents against it. I am awaiting for the kit to be delivered to me today. May be I can send you the scan copy of the same. I have requested bank to clarify what is the undertaking against to be shared with me on their letter head however they are dodging the question which is making me suspicious of their intent.

c.p.s. ramachary (1500) 18 August 2012

I fully agree with the views of Mr.Rohhi advocate. It seems that, the bank seeks to have additional security i.e.equitable assignment of your insurance policy in respect of the mortgaged property in its favor for loss of the building in natural calamity. In fact it reduces your personal liability in the loan transaction covering your undertakings in the loan documents. I think that the bank is right since it is financing against a flat (building) with undivided share in the land (which will be lesser in value).