What happens to home loan defaulters?

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Home is the sweetest abode and when you build a home you want to stay in it for as long as possible. Now, if you have sought loan to make your home, then make sure that you repay it on time so that your home stays yours. However, if you fail to repay, then what happens? What happens to home loan defaulters?

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Home loan defaulters- What happens to them?

RBI has stated rules and guidelines for home loan defaulters. When a person fails to repay loan, his entire amount of remaining loan becomes a non-performing asset. In that case, the bank has full right to ask repayment of the home loan in the form of outstanding amount.

The moment a person fails to pay an instalment, it becomes a default instalment. However, home loan default is not a grave issue, since repayment of one or two instalment may happen. Nevertheless, in case of serious situations, legal actions are taken against all home loan defaulters.

Home loan defaulters- What the banks do against them?

The government of India passed a law to protect the interest of lenders, called SARFAESI (Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interests Act) in 2002. The law allows the lenders to seize and eventually sell the mortgaged property from the borrower and sell it to acquire the outstanding loan amount.

However, it should be kept in mind that financial institutions like banks are not so severe when it comes to confiscate borrowed amount plus interest from borrowers. Banks try every other possible way to acquire the due loan amount from home loan defaulters. But when nothing works, legal action is taken.

Other obligations for home loan defaulters-

The property is seized by the lender and sold to produce the rest of the lending amount, but problems of borrower do not end there. If the amount realized from property sale is more than outstanding amount, then the excess money paid to the borrowers. Otherwise, if the property sale amount is lesser than the outstanding amount, then the borrower will have to pay the shortfall amount. Apart from this, the borrower will have to meet another obligation which includes paying to reimburse long term capital gain tax.

Another obligation rises when the property against which the borrower has taken loan is disposed within 3 years from the day of acquisition; the excess amount over cost of the property is regarded as short-term capital gain. In that case, the excess amount is taxed for home loan defaulters.

Since it is a serious situation, what can home loan defaulters do to save the property?

  • Liquidating investments is a great option. Liquidate bank fixed deposits, equity and mutual funds and pay it off to bank. This way you can save your dream house.
  • Have a communication with your lenders. Home loan defaulters can evade grave situation like legal action against them in case of default of loan repayment by talking to the lender regarding EMIs. Request the lender to extend the total loan tenure since this will help to bring the amount of EMI within your financial.
  • If home loan defaulters come across serious situation that curb their ability to repay loan, then they have an option to save themselves. Suppose, if the borrower falls critically ill and cannot work, then he/she can furnish related documents in the bank as proof of his/her condition. Further, you will have to produce more documents to the bank proving your record of servicing and your disciplined repayment process, then the bank may be convinced to reschedule your loan.

Home loan defaulters, therefore, can follow the above three ways to curb any problems rising from non-repayment of loan.

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