Getting a home loan is one of the easiest and most viable options to finance a house purchase. Home loan EMIs can be a substantial amount. However, it is necessary to plan and ensure timely payment of the EMIs. Defaulting on EMI payments can have legal consequences besides impacting one’s credit score. Banks and lending institutions will consider the loan a non-performing asset (NPA) after three consecutive EMI defaults. Further, to recover the dues, banks can take possession of the collateral, that is, the property in this case.
See also: What to know before bidding for a property in an auction?
Can banks auction a property?
A demand notice is sent to the borrower and the guarantor. A borrower is given a timeline, usually 60 days, to respond and settle the dues. If they fail to respond even after the follow-ups, the bank can take possession of the property under the SARFAESI Act.
After the property is acquired, the bank or the lending institution can sell or lease out the property. It can also assign the right over the property to any other entity. After the property sale, the lending institution will keep the outstanding dues and send the remaining amount, if any, to the borrower.
What is the SARFAESI Act?
Under the SARFAESI Act, which is the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, banks and lending institutions are entitled to recover money from defaulting borrowers without a court’s intervention. They can take control of the assets used as a collateral for the home loan if the borrower is unable repay the dues.
What is the auction process?
If the EMI is not paid within 90 days, the loan is declared as an NPA. The information is sent to the credit bureaus. Further, the lender also sends a formal demand for repayment to the borrower.
A legal notice is issued if the borrower fails to respond. In case the borrower does not respond to the legal notice within 60 days, the lending institution takes possession of the property.
Usually, the lender gets a notice published in at least two major newspapers inviting individuals for the auction at least a month before the event. Further, participants are asked to submit their claims or objections within 14 days.
See also: Bank of Baroda withdraws auction notice issued to actor Sunny Deol
What are the rights of the borrowers in this situation?
Borrowers can settle their dues to prevent their property from being auctioned. A borrower can respond within 60 days, stating why the bank or lender should not initiate a property auction due to default in payment. If they pay the instalment, the notice is withdrawn. The bank auction process is initiated after 30 days if there is no reply or if the reply is not satisfactory.
Moreover, borrowers have the right to a fair valuation of assets. They can request a reassessment of their property if they consider the value too low. Any amount remaining after the repayment is completed will be deposited in their account.
| 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 |
