How To Address Fraud By Builders In Real Estate Transactions?

The Indian property segment has been one of the sectors in the economy where the first problem long-standing has been a relationship with malpractices and fraud. Builders and developers who foot the bill in the establishment and are often involved within the context of fraudulent activities use it as a tool to create a culprit notion among buyers and investors. The fraud can be false promise, delayed possession, unauthorized constructions, misrepresentation of approvals, etc. To curb the challenges involved in the situation, an all-round approach is required, looking towards legal frameworks, the buyer himself, and reforms within the systems.

Real Estate Fraud by Builders: About

All possible types of real estate fraud can be listed in the form of types according to the nature of the fraud and the intention behind it. Some forms of fraud perpetrated by builders are:

Delay in Project Execution

Such builders would bring a project late beyond the time promised for hand outlining of the property to buyers. Buyers have to suffer financial and emotional stress as many may have to pay rent besides EMIs. Delayed possession is one of the most common grievances in real estate.

False Promises and Misrepresentations 

Some builders offer buyers a number of incentives in the form of brilliant advertisement designs and promote luxury amenities or a strategic location, thereafter selling a project constructed rather poorly.

Unauthorized and Unapproved Constructions

One risk that these types of properties carry for the buyers is where the builder sells the property without getting the required permissions and violates zoning laws.

Diversion of Funds

In many cases, these builders divert funds from one building to another, resulting in a delay and a poor financial situation of the original project.

Overpricing and Hidden Charges

Even sometimes increased prices, hidden costs may get levied making it a traumatic experience for the buyers considering they may not know real market rates.

Forgery and Document Fraud

The sale of the same property to various buyers or the forged title deeds is not uncommon in this scenario.

Addressing Fraud by Builders in Real Estate Transactions: Legal Framework

India has instituted several laws that would effectively protect buyers against malpractices in the real estate sector. Such laws provide the primary fence against fraud.

Real Estate (Regulation and Development) Act, 2016 (RERA)

• Transparency and accountability: Registration of projects along with all other information, like all the necessary approvals and timelines, is to be made through the RERA portal. This ensures transparency.
• Grievance Redressal: Buyers can lodge a complaint against builders for delays or quality issues, or misrepresentations in the project. The RERA authorities will penalize errant builders.
• Timely Delivery: Builders must either deliver the projects as per the stipulated time or compensate buyers for the delays caused.

Consumer Protection Act, 2019

With the new legislation under this Act, the buyer can approach Consumer Dispute Redressal Commissions and seek compensation against unfair trade practices or deficiency in service. The law simplifies the process of complaint registration, enabling the buyer to claim compensation for both financial and non-financial harm.

Bhartiya Nyaya Sanhita (BNS)

Severe fraud cases can be cover under the Bhartiya Nyaya Sanhita (BNS), specifically Section 316 (criminal breach of trust), Section 318 (cheating), and Section 338 (forgery).

Benami Transactions (Prohibition) Act, 1988

This Act prohibits fraudulent activities of holding property in benami (property in fake name).

Insolvency and Bankruptcy Code (IBC), 2016

Under IBC, homebuyers are class as financial creditors, thus enabling them to file for insolvency proceedings against such builders who do not pay them.

Challenges in Addressing Builder Fraud

Notwithstanding strong laws, a lot of challenges carry on:

• Ignorance among Buyers: Most purchasers are ignorant of their legal rights or redressal mechanisms available to them.
• Justice Delayed: Legal proceedings in India often take a long time which discourages buyers from seeking justice.
• Regulatory Loopholes: Weak enforcement of existing laws coupled with overlapping jurisdictions of regulatory agencies undermine the fight against fraud.
• Bureaucratic Hurdles and Corruption: Corruption in approval-granting government agencies leads to opportunities for builders to flout regulations.
• Informal Sector Transactions: Taking a cash route and non-registrations make the legal accountability in the informal sector difficult.

Measures to Address Builder Fraud

Strengthening Regulatory Frameworks

• Enforcement of RERAs: The State RERA authorities must ensure strict compliance of registration requirements, including an effective penalty for non-compliance.
• Digital Assets: A centralized and publicly accessible data base of approved projects, builders’ credentials, and complaint statuses can enhance transparency.

Increased Awareness of the Law

Government agencies and non-governmental organizations have to create awareness. Through their campaigns, they should inform buyers about their rights and the remedies accessible through the legal system.

Buyer Vigilance

• Due Diligence: Projects approvals have to be check, in addition to land titles and the builder’s record, prior to investing.
• Legal Assistance: A legal expert can be hire to scrutinize the terms of contracts to prevent future contention.

Reform of the Legal and Judicial Processes

• Fast Track Courts: Set up special fast-track courts to handle disputes related to real estate and ensure that they are resolve within a specific time frame.
• Simple Procedures: RERA and consumer courts must be simplified in their complaint registration and adjudication-processes.

Adoption of Technology

• Blockchain for Property Records: Tamper-proof property records may be maintain through its application to reduce the risk of fraud.
• AI for Fraud Detection: Patterns in suspicious transactions may be detect by artificial intelligence and tag for fraud. 

Adopt Ethical Practices

Enforce a code of conduct among members, blacklist errant builders; for instance, industry body Confederation of Real Estate Developers’ Associations of India (CREDAI).

Strengthening Financial Regulations

There is a need for strict monitoring of the finances of builders to ensure that funds do not get divert. Project funds should be collect in the escrow account for the particular project so that it can be use only for the projected objectives.

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