Loan and Bank-Related Frauds in Property and Redevelopment

Loan and bank-related frauds in redevelopment happen when a developer borrows money against your society's land, or against the unsold flats in the new building, without the members' proper and informed consent. This can involve forged No-Objection Certificates (NOCs — a letter the society signs to say it has no objection to a specific act), mortgaging land that still legally belongs to the society, or pledging the same flats to a bank while also selling them to buyers. The single strongest protection is clear conveyance of the land into your society's name, backed by properly registered agreements, because a lender doing honest checks is far less likely to be misled about property whose title and existing charges sit on the public record. Under Section 11 of the Maharashtra Ownership Flats Act (MOFA), 1963, the promoter (the builder) is legally bound to convey title to the society and to bear the property's outgoings until that conveyance is done. This guide explains, in plain language, how these frauds work and the practical, low-cost steps Mumbai housing-society members can take to check for hidden charges and stay safe.

What "loan and bank" frauds look like in redevelopment

In almost every redevelopment the developer needs funds to construct the new building, and raising a genuine construction loan is normal and fully legitimate. The problem begins only when the borrowing is arranged in a way that quietly places the members' homes or the society's land at risk, without the members understanding or agreeing to it.

Patterns that have been reported over the years — always by some developers, never all — include:

• Mortgaging society land without clear authority — offering the plot as security for a loan even though the title was never properly transferred and the society never knowingly consented.
• Raising loans against unsold flats — pledging the developer's share of the new flats to a bank, and then also selling those same flats to buyers, leaving two claimants on one home.
• Forged or misused NOCs — placing before a bank a No-Objection Certificate the society never issued, or one that a few members signed under a misunderstanding.
• Double-financing — using the same project, or the same flats, as security for more than one loan from different lenders.
• Diversion of project funds — money borrowed or collected in your project's name being moved to another project, delaying your building and leaving the loan unpaid.
• Open-ended power of attorney — a broad authority signed early in the process being stretched later to create charges the members never intended.
• Loans dressed up as "advances" — money that is really a bank loan against the project being described to members as a friendly corpus or hardship advance, so nobody checks the security behind it.

How these frauds actually happen

Most of these problems trace back to two weak points: land that has never been legally conveyed to the society, and agreements or consents that members signed without reading carefully. When the land is still recorded in the name of the original owner or the developer, a bank can be shown documents suggesting the borrower controls the asset. When a broad power of attorney or an open-ended development agreement is signed, its wording can be stretched to mortgage or sell far more than the members intended.

Reviewing your paperwork before it is signed is always cheaper than untangling a fraud afterwards. Our note on red flags in a development agreement and the common agreement mistakes guide show the exact clauses most often misused to create charges over your property, and the agreement clause library gives safer wording you can ask for instead.

Warning signs and how to protect against each

Use this table as a quick reference. If you notice a warning sign in the left column, apply the protection on the right before you sign anything or release any money.

Why conveyance and registered agreements protect you

Conveyance means the land and the building are legally transferred into the society's name. Once that is done, the society — that is, the members together — is the recorded owner, not the developer. A lender doing basic due diligence will then see that the asset belongs to the members and cannot easily be mortgaged behind their backs.

The law is firmly on the members' side here. Section 11 of MOFA makes it the promoter's duty to convey title to the society and to bear the property's outgoings until that conveyance is completed. If the developer delays, Section 11(3) allows the society to obtain deemed conveyance — the title is transferred through a Competent Authority even without the developer's signature. Registration matters for the same reason: under Section 17 of the Registration Act, 1908, the development agreement, the permanent alternate accommodation agreement (PAAA) and the conveyance must all be registered, which puts them on the public record where hidden or backdated deals are far harder to pass off.

This is why courts have repeatedly stressed the developer's continuing responsibilities until conveyance is done. See our summary of the position that a builder must pay outgoings until conveyance, and the step-by-step conveyance guide for how your society can obtain it, including the deemed-conveyance route.

How RERA's project-account rule protects the money

Money discipline is the other half of the picture. Under the Real Estate (Regulation and Development) Act, 2016 (RERA) and MahaRERA, a qualifying project must be registered before it is marketed. Crucially, Section 4(2)(l)(D) requires the promoter to keep 70% of the money collected from buyers in a separate account in a scheduled bank, to be used only for that project — for its land and construction costs. This rule exists precisely to stop one project's money being diverted into another, which is the root of many loan defaults that later threaten the members' building.

Two more safeguards are worth knowing. The Registrar's directive under Section 79A of the Maharashtra Co-operative Societies Act expects the developer to furnish a bank guarantee of around 20% as security for performance, so the society has something to fall back on if the project stalls. And if the developer fails to hand over possession on time, Section 18 of RERA lets allottees claim a refund with interest. You can read more in our overview of MahaRERA promoter obligations.

How to check for charges and encumbrances on your property

You do not need to be a lawyer to run basic checks. A few public records will tell you whether a loan or mortgage has been created against your land or flats. An encumbrance is simply any charge, mortgage or claim that another party has over your property.

1. Property Card and 7/12 extract — from the City Survey office or the Maharashtra land-records portal. Mortgages and "other rights" are often noted here.
2. Encumbrance Certificate or Search Report — applied for through the Sub-Registrar (IGR Maharashtra). This lists registered transactions, including mortgages, over a chosen period.
3. CERSAI search — the central registry where banks record security interests. An asset-based search can reveal a charge created in favour of a lender.
4. Registrar of Companies (MCA) search — if your developer is a company or LLP, registered charges appear against its name, and a charge on your project may show up here.

Doing these checks before you sign, before possession, and before releasing any corpus is a simple habit that prevents most nasty surprises. Keep the reports on file with your possession and corpus records, and build them into your redevelopment checklists so they are never skipped.

How to protect your society, step by step

A few disciplined habits go a long way. Treat these as a standing practice for the committee and for every member:

• Prioritise conveyance. Make getting the land into the society's name a formal goal and follow the conveyance guide until it is done, using the deemed-conveyance route if the developer stalls.
• Insist on registration. Never rely on an unregistered agreement; make sure the development agreement, PAAA and conveyance are all registered as Section 17 requires.
• Vet the agreement independently. Have a professional review the mortgage, security and NOC clauses before signing — a tender and agreement review catches the language most often misused.
• Control your NOCs. Issue only specific, dated NOCs approved in a general body meeting, and maintain a register of every NOC issued.
• Watch the money. Confirm the RERA 70% project account is operating and, where offered, that the developer's bank guarantee is in place.
• Run public-record checks. Search the Property Card, Encumbrance Certificate, CERSAI and MCA records at each milestone, and file the results.
• Keep records safe. Store certified copies of the agreement, minutes, consents and search reports — a clean paper trail is your best defence, as our note on protecting society documents explains.

If your society has not yet organised its papers, you can register your society with us for structured guidance and reminders at each stage.

Your legal remedies if fraud is suspected

If members discover an unauthorised loan or a forged NOC, several genuine remedies exist, and the right one depends on the facts. Where there is dishonesty from the outset — for example a forged NOC created only to raise a loan — that can amount to cheating under Section 318 of the Bharatiya Nyaya Sanhita (BNS), 2023 (the law that replaced the old Indian Penal Code). Where money or property was received lawfully and then misused — for example project funds diverted elsewhere — the offence is closer to criminal breach of trust under Section 316 of the BNS, which carries imprisonment of up to five years. These two are alternatives: they cannot be alleged on the very same facts, so the complaint must fit what actually happened. Our note on how a builder's cheating can be treated as criminal explains this in plain terms.

On the civil and regulatory side, an allottee can file a complaint with MahaRERA under Section 31 of RERA, and the Consumer Protection Act, 2019 offers a deficiency-of-service route where members are treated as consumers. Because a co-operative housing society is involved, a dispute can also be taken to the Co-operative Court under Section 91 of the Maharashtra Co-operative Societies Act, 1960. Choose the forum with professional advice rather than acting alone in panic, and remember that documented facts — certified copies of the charge, the agreement and the minutes — carry far more weight than accusations.

The bottom line

Loan and bank-related frauds thrive on unconveyed land, loose agreements and unchecked NOCs. Members who insist on conveyance under MOFA Section 11, register every agreement, keep the RERA project account honest, and run simple public-record checks make these frauds very hard to pull off. Stay calm, stay organised and verify — protection here is mostly about steady habits, not luck.