In any kind of investment across any asset class, including the real estate, the general perception is to grow. The expected growth and appreciation are mostly achieved in the real estate sector due to strong market study and due diligence. However, there may be unfortunate period when you may face risks on investments. One such risk is investment in an under-construction property followed by the builder declaring bankruptcy. This hits the homebuyers hard as they would still be paying EMIs for the home loan taken for the property. So how should they deal with the situation when a builder files for bankruptcy? Let’s know here.
See also: What to do if a builder sells the same property to multiple buyers?
Define bankruptcy
Bankruptcy is legally recognising the state of a company or a promoter who is not able to pay his debt. In the real estate business, a builder can become bankrupt owing to mismanagement of funds, not having enough funds, or sudden slowdown in the realty market.
What are the options a homebuyer has if he/she has invested in a project or company that has been declared bankrupt?
If a builder declares bankruptcy, he may abandon the project or delay the handover. While both the options are a headache for homebuyers, a late handover is still better than the abandonment of the project.
In such a case, the homebuyer should:
- First check with the developer if he has filed for bankruptcy.
- It’s a good idea to run through the property agreement and sale deed to see if any measures are mentioned in case of bankruptcy or delay in handover by the developer. In such a case, you can talk to the developer and try to get a mid-way out that will be less damaging financially.
- In case of non-cooperation from the developer, you should take professional help from lawyers.
- Seek help from the Real Estate Regulatory Authority (RERA) in that state.
- Approach the consumer court under the Consumer Protection Act.
- Seek help from the Insolvency and Bankruptcy Code (IBC) that was rolled out in 2020.
- Fill in Form F provided by the Insolvency and Bankruptcy Board of India (IBBI).
Insolvency and Bankruptcy Code (IBC) 2020
This is an amended version of the Insolvency and Bankruptcy Code (IBC) 2016 under which insolvency should be solved in a time-bound manner. While the homebuyers can start proceedings against the developer under this code, there are certain conditions that the homebuyers should meet to present the case in a court. Around 10% of allottees should come together for insolvency against the promoter under the IBC.
Housing.com POV
While a promoter declaring bankruptcy is stressful for homebuyers, this risk nowadays has been minimised mostly with the state RERA insisting on updating quarterly progress reports (QPRs) and acting on failure to do so like freezing bank accounts, stopping project works, etc., until the promoter complies with the RERA rulings. The regulatory in some cases allow promoters to deregister from the project.
FAQs
What happens if a builder files for bankruptcy?
If a builder files for bankruptcy, first check with a lawyer on how you can file a case for claims.
Can a builder who has filed for insolvency enter a contract?
Yes. He can enter a contract regarding a property but cannot sell it.
Can creditors develop a project that they have taken over?
Yes, creditors who have taken over a project from the bankrupt promoter can revive the project.
What form should be filled in for claims?
You can ask for claims by filing in Form F given by the IBBI.
Does Maha RERA allow developers to deregister their projects?
Maha RERA allows developers to deregister their projects if promoters think that they cannot proceed with the project development.
| Got any questions or point of view on our article? We would love to hear from you. Write to our Editor-in-Chief Jhumur Ghosh at jhumur.ghosh1@housing.com |
