Unable To Pay Home Loan EMI? Tips for Home Buyers

Bangalore: Owning a house is like a feather in the cap for most individuals. It is one of the most expensive investments in one’s life and even there are several people who invest their entire savings to buy one. People also seek home loans to afford a house. Now a question arises, what if you fail to repay the loan amount? Will bank take over your house? Bank usually prefers repayment of the loan amount than seizing the property, which banks keep as their last option, reports Amit Shanbaug of Economic Times.

Bank always acts like a helping hand when you want to borrow money to buy your dream house. But, the same helping hand can turn out to be your home snatcher if you fail to pay EMIs (Equated Monthly Installments) on home loan. Home loans are accessible from banks but the problem arises when you are unable to repay the loan.

Usually, if you fail to pay the EMI once, a bank may overlook the act but the bank will start sending you reminder mail of your late if you miss it again.

A bank allows one default on EMI but if you fail to make your payment for the second time then the bank will send you a reminder mail of your late payments. A bank sends a demand notice only after three consecutive defaults to bring your attention to pay your dues at the earliest possible.

"If the borrower doesn't respond to any of the mails, the bank sends a legal notice through its legal department," said VN Kulkarni, chief counsellor at Abhay Credit Counselling Centre, which is sponsored by the Bank of India.

"After the end of this period, the bank can officially term the home loan an NPA and start the process of recovering the property through the SARFAESI Act," added Kulkarni. A bank declares a property as non-performing asset (NPA) only after three months wait. However, banks hold a power to implement the act of Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, (SARFAESI) to take over the non-performing assets without any interference of a court of law. 

Enforcing the act is the last option banks oft for. That is why, even after declaring a property as a non-performing asset, the bank gives the borrower a maximum time of three months to reclaim the property. 

"Banks and financial institutions are more interested in recovering the money than in starting legal proceedings as the procedure of attaching and auctioning a house is lengthy and takes time. So, they will pursue the matter for at least six months before taking legal action," said Pankaaj Maalde, Head, financial planning, Apnapaisa.com.

"Finally, five months after the first default, the bank sends a notice, stating that it has valued the property for a certain sum and that it will auction the house on a particular date. This is usually set for a month from the date that the bank mails you the auction notice," stated Kulkarni.

The final stage is when a borrower receives a notice from the Debt Recovery Tribunal, if the home loan amount exceeds 10 lakh. If the borrower has the will to pay off the dues to reclaim the property then it is necessary to attend the tribunal hearing. Here, bank tries to understand the reason for defaults.

According to Rajiv Raj, Director of CreditVidya, "Most lenders take a practical view of the situation and understand how critical the house is for the individual. So they will closely interact with the borrower to understand the reason for the financial hardship."

"Even if the auction date has been announced, the borrower can come in at any stage and pay the dues to save his property. However, if the bank has incurred any charges for announcing the auction, the borrower will have to pay these," remarked Kulkarni.

When you are unable to pay EMIs, there should be a proper reason, it can be losing your job or thereof. And, if you lost your job then it should be due to layoff or health related issues but not because you were fired from your job.  On the other hand, if you are positive enough to secure a different job to avoid defaults then bank can offer relaxations on the loan repayment. Besides, if you are in cash crunch situation due to reasons like soaring EMIs, increase in interest rates then you can report bank to restructure your loan by decreasing the EMI or by keeping it at the same level.

Other options to pay EMIs are from your retirement savings and redeem other investments, if you are broke. But, if you think that the situation would not recover even after six months then the best option is to sell off the property. You can always approach to the bank and make use of the sale profits to pay your loan dues.