20/08/2016
Unable to pay home loan EMI? Here’s what you need to know.
With real estate prices soaring across the country, for most middle income home owners, taking a home loan is the most financially viable method to purchase a property. With the government also offering various incentives and tax benefits on loans, today there is a large percentage of property owners with home loans.
However for many owners, the home loan equated monthly installments (EMIs) are a heavy financial burden that eat up a large chunk of the income. And very often due to various financial emergencies or unforeseen circumstances, buyers find themselves in a position where they can’t meet their EMIs on a regular basis.
In such a scenario, the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act (SARFAESI) empowers the bank to take possession of the property that is mortgaged to them, to recover the loan outstanding from the borrower. This however, is a last resort and due to the tedious processes involved, most banks are open to negotiations.
Missing a single EMI
Most banks will not consider you as a defaulter if you skip one EMI, they will simply slap on a few penalty charges on the next EMI. They may also call to remind you about the payment and verify the date of the next payment.
Missing 3 consecutive EMIs
If you miss 3 consecutive EMIs, the bank will start sending you reminder mails. If you ignore these mails, the next step would be a legal notice and you will be termed as a loan defaulter.
Being termed a loan defaulter will severely hamper your CIBIL scores. This essentially means that until you improve your CIBIL scores, availability of any credit in the future is seriously hampered. For instance any further loans or credit cards that you apply for might be rejected or tagged with a high rate of interest.
If you miss more than three EMIs the bank will send you a demand notice asking you to pay the dues as soon as possible. If the borrower doesn’t entertain the mail or the phone call by the bank and also doesn’t pay the dues, bank will send a legal notice. Additionally an authorized officer will visit to get the notice affixed on the door or some other conspicuous part of the house/building where the borrower is residing and may also publish the notice in newspapers. After the legal notice is sent to the borrower, the bank will wait for the next three months before declaring it as non-performing asset (NPA).
After declaring the property as a non-performing asset, the bank can start the process of recovering the property through the SARFAESI act. Even after enforcing this act, bank will give the borrower a 2 month time notice to clear the dues before starting to take possession of the property.
Six months after possession, the bank can auction the house after sending a notice to the borrower, which mentions the date of the auction and the amount at which the property was valued.
To avoid all the above steps, you can work out a few options with your bank.
1) Inform the Bank
If you are unable to pay your EMI on time, engage in a dialogue with the bank to inform them of your current plight and willingness to pay. This will enable the bank to offer you some leeway in terms of extension of payment date or cancellation of late charges.
2) Negotiate with the Bank
Possession of a property is the last thing a bank would want to do. Try to discuss with the bank and come up with a solution which is acceptable to you. Consider various options mentioned below:
a) You can ask for a grace period from the bank after clearly explaining your reason for not being able to pay the EMI. Most banks will be willing to provide you the grace period but with some penalty.
b) You can restructure your loan by increasing the tenure to reduce the EMI amount, thereby reducing the monthly burden.
c) Liquidating investments with the banks assistance is another option you can work on. Many banks may be willing to enter into a one-time settlement on a case to case basis.
Borrowers Rights
Even after the bank has seized the house, you can still get it back by paying the dues before the auction date.
Alternately you can appeal with the Debt Recovery Tribunal within 45 days of repossession. If the order passed is not in favor of the borrower, after 30 days you can appeal once again with the Appellate Tribunal. If found that the house has been wrongfully possessed, the property may be returned to the owner with appropriate compensation and cost.
Always remember that the RBI has issued strict guidelines against recovery agents mentally or physically harassing you for payments.
Solution
A home loan insurance is a great safeguard as it ensures that your loan will be repaid in case of your death, disability or loss of income.
Additionally many financial experts advice on always setting aside 3-4 months of EMI’s as a contingency plan in the event that you do not have financial resources to make your monthly commitments.
