Buying in a project mortgaged to the builder's lender: the NOC and RERA section 11(4)(h)

Rules and rates as of 22 October 2026.

Many under-construction projects are built partly on borrowed money. The builder takes a project loan, and the lender secures it with a mortgage over the land and the flats being built. That is normal and not, by itself, a reason for alarm. But it does mean a third party has a claim over the building you are paying for, and you should know what protects you if the builder stops repaying.

The Real Estate (Regulation and Development) Act, 2016 (RERA) deals with this in two places: what the builder must disclose before selling, and what it cannot do after selling to you. The Supreme Court has also said how RERA sits alongside the SARFAESI Act, the law banks use to recover secured loans. This explainer walks through all three, and what to ask for before you pay.

Before you book: the encumbrance declaration

To register a project, the builder files a declaration, supported by an affidavit, under section 4(2)(l) of RERA. Two parts matter here:

• Section 4(2)(l)(A): that the builder "has a legal title to the land on which the development is proposed", with authenticated documents if the land is owned by someone else.
• Section 4(2)(l)(B): "that the land is free from all encumbrances, or as the case may be details of the encumbrances on such land including any rights, title, interest or name of any party in or over such land along with details".

A project mortgage is an encumbrance. So the declaration should either say the land is free, or name the lender and the charge. Under section 11(1), the builder must enter the details filed under section 4(2) on the RERA authority's website "for public viewing", and section 34(b) requires each authority to keep a public website of records of all registered projects. In practice, this means you can look for the declaration among the documents on the project's page on your state RERA portal. Portals differ in how they label it.

The RERA declaration is the builder's word. It does not replace your own checks of the land records and the central registry of security interests, which we covered in a separate explainer on encumbrance certificates and CERSAI searches.

After you sign: section 11(4)(h)

This is the key protection. Section 11(4)(h) says the promoter shall, "after he executes an agreement for sale for any apartment, plot or building", not mortgage or create a charge on it. And if any such mortgage or charge is created, then "notwithstanding anything contained in any other law for the time being in force, it shall not affect the right and interest of the allottee who has taken or agreed to take" that unit.

Two things follow.

• The date of your agreement for sale matters. The bar applies to mortgages created after the agreement is executed. A mortgage the builder created before your agreement is not covered by section 11(4)(h) in the same way, which is why the disclosure at registration matters.
• Register your agreement. The protection is tied to an executed agreement for sale. A booking form or allotment letter alone leaves the date of your rights less clear. A lawyer can advise on registration in your state.

RERA also contains an overriding clause. Section 89 says the Act has effect "notwithstanding anything inconsistent therewith contained in any other law for the time being in force", while section 88 says it is "in addition to, and not in derogation of" other laws.

If the builder defaults: SARFAESI and RERA

When a borrower defaults on a secured loan, the SARFAESI Act lets the lender serve a notice giving "sixty days from the date of notice" to repay (section 13(2)). If the borrower still does not pay, section 13(4) lets the lender take possession of the secured assets and sell them, without going to court. For a builder, those assets can include unsold flats and the project land.

What about flats already sold? In Union Bank of India v. Rajasthan Real Estate Regulatory Authority (SLP (C) Nos. 1861-1871/2022, order dated 14 February 2022), the Supreme Court agreed with the Rajasthan High Court's conclusions and dismissed the bank's petitions. Those conclusions, as quoted in the order, include that:

• "in the event of conflict between RERA and SARFAESI Act the provisions contained in RERA would prevail", relying on the Supreme Court's earlier decision in Bikram Chatterji;
• RERA does not apply to mortgage transactions between a borrower and a bank made before RERA came into force "unless and until it is found that the creation of such mortgage or such transaction is fradulent or collusive" (spelling as in the order);
• where the bank takes recourse to section 13(4) of SARFAESI, the "RERA authority has the jurisdiction to entertain a complaint by an aggrieved person against the bank".

So a buyer facing a bank's possession notice on a project is not limited to the Debts Recovery Tribunal. A complaint can go to the RERA authority. Outcomes depend on facts, including when the mortgage was created, so take legal advice early.

The NOC from the builder's lender

RERA does not use the term "NOC". In practice, when a project is mortgaged, buyers and their home-loan lenders commonly ask for a no-objection letter from the builder's lender. A useful letter does three things:

1. names your specific flat (tower, floor, unit number);
2. says the lender has no objection to its sale to you, and will release the flat from its charge once the dues on it are paid; and
3. names the bank account into which your payments must go.

The account matters. Under section 4(2)(l)(D), the builder must declare that 70% of the amounts realised from allottees will be deposited in a separate account in a scheduled bank "to cover the cost of construction and the land cost and shall be used only for that purpose". Withdrawals must be in proportion to the project's completion, certified by an engineer, an architect and a chartered accountant. Payments that bypass the named accounts weaken your paper trail.

Worked example: where your money should sit

Suppose the flat costs ₹80 lakh and you pay in stages. The share that must go to the project's separate RERA account is:

Separate account share = amount paid × 70%

At the 30% stage you have paid ₹80,00,000 × 30% = ₹24,00,000. Of that, ₹24,00,000 × 70% = ₹16,80,000 belongs in the separate account, while section 4(2)(l)(D) does not ring-fence the remaining ₹7,20,000 in the same way. Figures exclude GST and other charges.

Stage (illustrative)	Paid so far	70% to separate account	Balance 30%
Booking, 10%	₹8,00,000	₹5,60,000	₹2,40,000
30%	₹24,00,000	₹16,80,000	₹7,20,000
60%	₹48,00,000	₹33,60,000	₹14,40,000
Full, 100%	₹80,00,000	₹56,00,000	₹24,00,000

Keep the receipt for every stage, showing which account was credited. If the lender's NOC names an account, check that it matches.

A short checklist before you pay

• Open the project's RERA page and find the section 4(2)(l) declaration. Does it name a lender or say the land is free?
• Ask the builder in writing for the lender's no-objection letter for your unit, and for the account details.
• Check the date of any mortgage against the date you sign your agreement for sale.
• Pay only into the account named in your agreement and the NOC, and keep the receipts.
• Get a lawyer to read the title report, especially if the project loan was taken before RERA came into force.