A home loan is not just a credit product, it is indeed a financial commitment. Such commitments generally continue for a decade or sometimes more than that. A borrower promises to pay a fixed amount to the lender for coming years which can be as long as 30 years.
Making commitments has always been easy but meeting those can sometimes be difficult because of the unforeseen situations. Such bad times can come to the life of any person when you are financially broken and become unable to pay off the loan EMIs. Such situations are never expected in anyone’s life but in the worst case, if you ever had to undergo such situations, you must know what you should do. While servicing a home loan, we should always expect the best while keeping ourselves prepared for the worst. Let’s understand what a loan default is and how to handle if it ever comes to you.
What is a Home Loan Default?
Such conditions are called a loan defaulting when a borrower fails to keep his legal agreement with the lender regarding the loan. The loan agreement says that the borrower will pay a fixed amount of money to the lender every month. If a borrower stops paying his EMIs, he/she is called a loan defaulter.
The central banking institution, The Reserve Bank of India with the collaboration of Indian Banking Association made strict rules and guidelines which outline the proceedings banks are supposed to follow to recover loans. Recovering loans especially when it comes to home loan has always been a sensitive matter for the borrower. Understanding the fact, RBI has made those rules to be followed by the banks while undertaking the loan recovery process. RBI ensures that a person is still entitled to be treated respectfully even if he/she has defaulted a loan. Let’s learn the other rights of a loan defaulter
What are the Rights of a Defaulter?
Right to have a Notice
Prior to starting any loan recovery process, the loan defaulter has the right to get a notice from the lending institution. When a borrower fails to pay EMIs for 90 days, the lender should send him a notice of further 60 days. If the 60 days of the notice period is over and the loan is still unsettled, then only the legal action against loan defaulter can be initiated by the bank.
Right to be Heard
During the notice period, the defaulter can reach the loan provider and can make his representation to put forth objections to the repossession notice. The bank officer must reply within 7 days with the valid reason if he rejects the application.
Right to Ensure Fair Value
In the worst case, if the bank has repossessed your property, the property value must be finalized with your consent. If you feel that your property is being undervalued by the lender, you can raise your voice. In such cases, you can raise an objection and declare a price which you feel to be reasonable. One can even look for prospective buyers and can fix a meeting with the lender if he feels that this can bring a good deal.
Right to the Balance of the Auctioned Process
A loan defaulter has a right on the balance amount of the auctioned property. If the house is sold at a higher amount than you owe to bank, you have the right on the excess amount.
What Can You Do if the Collection Agents Knock Your Door?
If you have missed your EMI payments for more than 5 months even after you receive a notice from your loan provider, this is the time when you may meet the collection agents at your door. Even when collection agents start visiting you, you have some rights.
Here are the rights of a loan defaulter when collection agents knock at your door.
Right to Check the Identity
At the first point, you can ask for the identity of the collection agents. The collection agents must be authorized by the Indian Institute of Banking and Finance to act as a recovery agent. All the recovery agents must carry their ID cards and have an authorized letter from the bank.
Right to Privacy
The recovery agents must discuss only their business. None of the agents have the right to make any interaction with the members of the family of the loan defaulter. Agents can talk to the members of the family only if the defaulter is out of reach. The agents can visit any defaulter only between 7 am to 7 pm. The agents can’t threaten a defaulter in any condition. If they do so, one can raise a complaint against them.
Right to be Treated Respectfully
Whatever your loan condition may be, you being a customer of the bank, have the right to be treated humanely. The Indian law of loan defaulter says that the collection officer must request you politely to have a meeting as per your convenience. This convenience is taken as one of the rights of a loan defaulter. The collection agents are to treat the defaulter in a respectful manner without using any objectionable language or behavior.
The Escape Route
If it happens that you are unable to pay off your loan and collection agents have reached till your door, it doesn’t mean that this is the end. There are still some ways left which can save your property.
In the first place, you can Contact Your Lender. Remember the ground rule that you must not avoid the bank calls or collection agent. Such activities will escalate your problems further. Instead, you can talk to your lender while mentioning your present financial condition so that they extend the notice period.
The other way to save yourself is the One Time Settlement. This is the procedure where banks waive off the loan interest and you are to pay only the principal amount. But remember the fact that this will be reflected in your credit report.
The next and the best way is to Restructure the Loan. By opting this way, you can request the lender to increase your tenure so that the EMI amount will become smaller and you will be able to continue to pay the EMIs.
The Bottom Line
A home loan is like a stepping stone of your home purchasing for a huge number of people. People around the globe use this credit product as the key financial support for home buying. But at the same time, we are to use this product very carefully as being unable to pay off your loan can make your dream home slip off from your hands.