Buying a resale flat with the seller's home loan still running: how the loan gets closed

Rules and rates as of 21 October 2026.

Many resale flats come with a loan still running. The seller's bank holds the original sale deed and the chain of title papers, and has a charge on the flat. That does not stop a sale. It means the price has to be split, the old lender paid off, and the papers and the charge released in the right order, so that you end up owning a flat with no one else's claim on it.

This explainer covers the legal duties on each side and the sequence on closing day. Our earlier pieces explain how to search for a loan on a flat (the encumbrance certificate and CERSAI) and the RBI's 30-day rule for returning papers after closure; we do not repeat them here. It is not legal advice. Have a property lawyer check your documents.

The seller's duty: clear the loan

The Transfer of Property Act, 1882 sets the default rule. Under section 55(1)(g), the seller must pay "the interest on all encumbrances on such property due on such date" and, "except where the property is sold subject to encumbrances, to discharge all encumbrances on the property then existing". A home loan secured on the flat is an encumbrance. So unless your agreement expressly says you are buying the flat subject to the loan, clearing it is the seller's job.

Section 55(3) adds that once the full price is paid, the seller is "bound to deliver to the buyer all documents of title relating to the property" in the seller's possession or power. Those documents are usually sitting in the seller's bank, which is why the bank has to be part of the plan.

What the seller's bank must do, and for whom

The RBI circular RBI/2023-24/60 of 13 September 2023 requires lenders to release all original property documents and "remove charges registered with any registry" within 30 days after full repayment, and to pay ₹5,000 a day for delay attributable to them. Two points matter for a buyer:

• The rule speaks to the borrower. The circular gives "the borrower" the option of where to collect the papers, and the compensation goes to "the borrower". It says nothing about handing papers to a buyer or the buyer's bank. That has to be arranged in writing between the parties.
• The clock starts at closure, not at registration. The 30 days run from full repayment. Your sale deed may be registered before the papers come back.

The Securitisation Act (SARFAESI) has a parallel duty for the central registry, CERSAI. Section 25 requires the lender to report payment or satisfaction of a registered security interest "within thirty days from the date of such payment or satisfaction". If it does not, section 25(2) lets the borrower intimate the Central Registrar, who then issues the lender a show-cause notice.

How the mortgage itself is released

How the charge goes depends on how it was created.

• Mortgage by deposit of title deeds. Banks often create home-loan mortgages simply by keeping the original papers. The Registration Act, 1908 recognises this in the proviso to section 48. Release here means getting the papers back with the bank's no-dues letter, and the CERSAI entry cleared.
• Registered mortgage deed. Section 17(1)(b) makes registration compulsory for a document that purports to "create, declare, assign, limit or extinguish" a right in immovable property worth ₹100 or more. Section 17(2)(xi) exempts a receipt for mortgage money only "when the receipt does not purport to extinguish the mortgage". So a deed that does extinguish a registered mortgage, usually called a release or reconveyance deed, needs to be registered, and should then show up on a fresh encumbrance certificate.

Your sale deed must itself be registered under section 17(1)(b). Section 49 says an unregistered document that should have been registered does not affect the property.

Worked example: splitting the price

All figures are illustrative. You agree to buy a flat for ₹95 lakh. You pay ₹19 lakh from savings and the rest, ₹76 lakh, comes from your own home loan. The seller's bank issues a foreclosure letter showing ₹38,42,000 outstanding as on 1 November, at 8.6% a year.

Interest keeps running until the money reaches the seller's bank. A simple daily figure is:

Daily interest = outstanding × rate ÷ 365 = ₹38,42,000 × 0.086 ÷ 365 = ₹905 a day (rounded).

Your lender pays the seller's bank directly and the balance to the seller. If registration slips, the payoff rises and the seller's share falls:

Payment to seller's bank made	Extra interest	Paid to seller's bank	Paid to seller from your loan
On 1 November	₹0	₹38,42,000	₹37,58,000
12 days late	₹10,863	₹38,52,863	₹37,47,137
30 days late	₹27,157	₹38,69,157	₹37,30,843

For the second row: ₹38,42,000 × 0.086 ÷ 365 × 12 = ₹10,863, so the bank gets ₹38,52,863 and the seller gets ₹76,00,000 − ₹38,52,863 = ₹37,47,137. Your total price stays ₹95 lakh in every row. Lenders compute interest their own way, so always use a fresh foreclosure letter dated close to the payment date rather than this estimate.

A closing sequence that protects you

1. Before the token. Ask the seller for the bank's list of documents held and a current outstanding statement. Match the list against the title chain your lawyer expects.
2. In the agreement for sale. Record the loan, the lender and the account. State that the part of the price equal to the payoff goes directly to the seller's bank, and that the seller will bring the original papers and the no-dues letter. Say who bears interest if completion is delayed.
3. Get your own lender in early. It will want the originals. Ask both banks, in writing, how the papers will move: whether the seller's bank hands them to your bank against the seller's authority letter, or to the seller first.
4. On payment day. Pay the seller's bank by a traceable bank transfer to the loan account, never in cash to the seller. Get the bank's receipt.
5. After closure. Track the 30 days. Collect the no-dues letter and the originals, and check the list page by page. If the mortgage was registered, ask for the registered release deed.
6. Re-check the records. Run a fresh CERSAI search and encumbrance certificate after the release to confirm the charge has gone.

A gap between registering your sale deed and getting the old papers back is common. A lawyer can tell you whether to hold back part of the price, or use an escrow, until the papers and the release are in hand.