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It is important to note that the borrowers who have defaulted on the loan has also some basic rights to safeguard their interests upon default
Covid-19 has terribly hit finances of many, especially of those who lost their jobs or suffered a pay-cut. If these people had home loan, car or any other loans running, they may have missed on their equated monthly instalments (EMIs). If you are facing a similar situation, the response to following reader’s query by Adhil Shetty, CEO, BankBazaar.com will help you find a solution:
My friend has a home loan running with a private bank. He could not pay his EMI for the last 12-15 months. The bank has now sent a notice to him. He wants to settle the matter. What are some available options for him? He is not in a position to pay his EMI or loan amount.
– Advit Pathak
By Adhil Shetty, CEO, BankBazaar.com
A home loan is a securitised debt. In essence, the lender has rights to the property till the day the loan is repaid in full. A home loan is in default if the borrower fails to pay his dues for 90 consecutive days. The lender has the right to remind the borrower about the missed payments via notices at monthly intervals. The borrower has the right to reply and make the required payments after the notice to avoid seizure of the property by the lender.
Your friend can regularise his payments by liquidating any other assets. In the meanwhile, he can also work with the lender to arrive at mutually agreeable terms to make the payments easier. It also needs to be said that the delays in payments would have already hurt your friend’s score. This will make future borrowings difficult.
If a valid explanation is given to the lender for the default by the borrower, the lender may give the borrower more time to resume the EMIs or restructure the loan — options that can work for both the stakeholders. The restructuring options may include adjustments to interest rate and loan tenure.
He can also ask the bank about a one-time settlement. It presents the option of making a one-time payment to the lender to clear off a percentage of the dues after waiver of principal and interest. While this option will help deal with the loan, it will also damage his credit score.
If the dues remain unpaid for 12 months, the lenders have the right to take over the asset under the provisions of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act. The act provides the lenders the right to auction the security, in this case the house, to recover the unpaid dues towards the loan that’s become bad.
That being said, it is important to note that the borrowers who have defaulted on the loan has also some basic rights to safeguard their interests upon default. Firstly, the lender can only take actions like seizing or auctioning your property after giving your friend sufficient notice. Even for the auctioning of the property, the borrower has the right to receive the auction notice, get a final chance to pay off the dues, and even receive excess proceeds from the auction.
However, if the dues remain unpaid, and your friend isn’t able to raise the money to clear his dues, the lender will have no option but to auction the property to recover the dues.
During the entire process, the lender is expected to treat your friend with respect and dignity. In the event of harassment, your friend is entitled to ask for protection.