What if I fail to repay my home loan? Will bank seize my property in case of default? Will I get a negative CIBIL report in case of a default by error? All borrowers and would be borrowers are confronted with these question in mind, as unintentional default by error or omission can happen to anyone.
All loans are legal contracts and whoever lends you expects a timely repayment. Whenever loan accounts are due or defaulted, bank can adopt all necessary measures to recover it for their healthy functioning. Defaults are handled by the recovery department of the bank who operates either directly or through outsourced agencies.
Here’s a step by step detailing on the various actions taking by banks on defaults and its possible impact on you.
Defaulting 1-2 EMIs
You will get SMS alerts if the payments are not made on time. This is an automated alert intended to remind you of the dues. If this is carried beyond 10 days, the recovery department of the bank extracts the data and will start calling you. Delayed payment can be made in the same account along with penal charges as prescribed by the bank.
Defaults beyond 3 Months
For any payments due beyond 3 months, banks can record the details in CIBIL. A negative CIBIL ranking will definitely affect your financial life, curbing your future chances of availing loans.
What if you are not in a position to repay?
Unintentional defaults for home loans can happen due to a number of reasons like loss of job, illness, accidents, financial disorders etc. In such cases, borrowers can always approach the bank and talk to the manager honestly about his / her present condition. Banks are supposed to give a fair chance to honest customers, including holiday periods, loan restructuring or flexible payment options like step down repayment facility. However waiver of penal charges is at the discretion of the bank.
Another option left for the borrower in such conditions is opting to sell the property. The new buyer can pay the amount to the bank and take charge of the property. Or else, the buyer can avail loan from the same bank and the disbursement can be made against the defaulted loan account.
When will notices issued?
Preliminary notices, in the form of registered letters will be sent to the borrower by the bank from time to time. But in case if it comes to the notice that it is a willful default or if the customer has not shown the courtesy to explain the situations to the bank, the bank can go for legal proceedings.
Legal proceedings include filing a suit against the borrowers and guarantors if any, in the form of civil or criminal cases, or to initiate proceedings to seize the collateral property. In case of any legal move made by the bank, the borrower should approach a lawyer for a peaceful settlement. But the bank’s right to recover their legitimate dues through law cannot be denied or questioned.
Can Ill treatments happen?
In the previous years, there were several instances of ill-treatments faced by borrowers from debt recovery agents. However, according RBI’s guidelines, borrowers should be given reasonable time for repayment and it strictly prohibits any unethical practices of recovery agents. There are even laws laid on the qualification and background of a recovery agent. Borrowers can file legal suits against banks if they happen to face any sort of harassment from the officials or agents.
How long legal procedures will take?
In case of defaulted home loans, banks can legally seize the property after notifications and due holiday periods and liquidate the same to recover the debts. But a legal solution can take years.
The home loan recovery process and holiday periods may vary from case to case and therefore the exact time frame to declare a default or to initiate legal proceedings cannot be put in agreements. Some sort of pressure from the bank’s side cannot be avoided in some cases of willful default. But, if as a borrower, you have a genuine reason, you always have the right to raise your voice against any unethical practices from the bank in connection with holiday period or code of conduct.