The home loan agreement is usually a 50 page document that most borrowers do not have the patience to study in detail. However all such agreements have a few tricky clauses that protect the lending institution and may compromise the interest of the borrower! Thus one needs to be aware of these clauses and the means to deal with them. Some of such tricky clauses are listed below with a few suggestions to deal with them.
Assignment to third parties: Most of the HFC mention in the home loan agreement that they can without the permission of the borrower assign their rights to any third party for the purpose of collection and recovery of outstanding dues. The typical statement in the clause will read somewhat like “the bank may assign any of its rights or obligations herein without any approval or consent of the borrower.” However this an unfair clause that the borrower must discuss with the banker at the time of signing and get the required amendment made.
Notification Clause: In the majority of the agreement formats there is a clause that the borrower shall notify the lending institution of any changes in his personal status such as employment or marriage well in advance. The clause “well in advance” is quite ambiguous and can be used by the bank to its advantage while declaring a default. Thus the borrower must insist on getting this amended to a more tangible figure that is acceptable to both the parties at the time of signing the agreement.
Cross Default: this is another gray area where the borrower is deemed to have defaulted in the home loan repayment in case he defaults in servicing any other loan elsewhere. Since the two payments are independent they should not be cross considered for the purpose of default definition. The clause can be eliminated by bargaining hard with the HFC at the time of taking the loan.
Amendment Clause: The HFCs often include this clause to retain rights of amending the terms and conditions of the agreement unilaterally without the permission of the borrower who is the second party to the agreement. A typical amendment clause line to watch out for is “he bank shall at its sole discretion alter the terms of this agreement by written intimation sent to the borrower by courier. Any amendment proposed by the borrower shall be valid only if made by a written agreement signed by both the parties.” This clause is completely unacceptable by any legal standards and hence must be out rightly rejected while signing the agreement. The implications of the amendment clause are completely against the interest of the borrower who is an equal party in the home loan agreement.
Great care should be taken at the time of signing the agreement to scrutinize the document for such ambiguous and tricky clauses that may compromise the interest of the borrower later. In case the borrower finds any of these clauses unacceptable he may reject the agreement or renegotiate for an appropriate one with the HFC.
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