ALMOST every home loan borrower has this niggling fear: What if I default? Higher interest rates could hit those with floating rate home loans, triggering a rise in defaults. A loan, which could be comfortably serviced at an 8% floating interest rate could cause substantial discomfort after the rates rise to around 12%. For some, it could even lead to a problem in repayment. This scary scenario isn’t all that rare. According to rating agency Crisil, the share of bad loans is likely to swell to 4% of banks’ total loans in the next two years.

In case of a default, it is best to approach the lender for an amicable settlement. If all efforts undertaken for repayment fail, the lender is likely to take over and sell the mortgaged property. No

doubt, it is very painful to let go of your prized possession, which you may have acquired with your lifetime’s savings. However, in such circumstances, borrowers need to keep an eye on their rights, which provide adequate opportunity to repay.

As regulated entities, there are certain limits that banks cannot cross. For instance, RBI guidelines do not allow a lender to repossess without proper notice. The central bank also has norms that are taken into consideration under specific circumstances. There is a well-laid out procedure for taking possession of the security, provisions regarding a final chance to repay and a procedure for sale. These are in addition to the strict guidelines for recovery agents. Lenders take recourse to Sarfaesi Act

USUALLY, banks invoke the provisions of Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interests (Sarfaesi) Act for a quick recovery. This involves a 60-day notice period. But the Act states that such a notice cannot be issued until the borrower’s account is classified as a non-performing asset; that is, when it is 90 days overdue. “If the borrower fails to repay even after the notice period, the bank can go ahead with the sale. However, in order to sell, the bank has to serve another 30-day notice mentioning the sale,” Abhay Debt Counselling Centre debt counselling head VN Kulkarni said.

Further, if your mortgaged home has to be sold, the bank has to publish a notice regarding the same in two leading newspapers specifying the reserve price. The sale has to be a private treaty sale — based on conditions mutually agreed upon by the bank and the borrower. “If you feel the property is undervalued, you can raise an objection. However, in case the auction is done through the court, an independent valuer is appointed for carrying out the valuation,” said Poorvi Chothani, proprietor of law firm LawQuest. “You can even sell your own house in order to repay the loan,”

PricewaterhouseCoopers associate director (financial services) Robin Roy said. “The borrower can introduce a prospective buyer to the bank or inform the bank about his intention to sell the property for clearing the dues. However, the bank will not part with the title deeds till all dues are fully settled,” added Mr Kulkarni.

If the sale proceeds exceed the outstanding loan, you are entitled to receive the surplus money unless the loan agreement states otherwise or prescribes a timeframe. “In case the auction is done through court, the proceeds are deposited with the court and the surplus proceeds are returned to the borrower within a reasonable period. When it comes to private treaty, the parties can mutually decide on the time period,” LawQuest associate Rekha Chakri said.

USUALLY, banks invoke the provisions of Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interests (Sarfaesi) Act for a quick recovery. This involves a 60-day notice period. But the Act states that such a notice cannot be issued until the borrower’s account is classified as a non-performing asset; that is, when it is 90 days overdue. “If the borrower fails to repay even after the notice period, the bank can go ahead with the sale. However, in order to sell, the bank has to serve another 30-day notice mentioning the sale,” Abhay Debt Counselling Centre debt counselling head VN Kulkarni said.

Further, if your mortgaged home has to be sold, the bank has to publish a notice regarding the same in two leading newspapers specifying the reserve price. The sale has to be a private treaty sale — based on conditions mutually agreed upon by the bank and the borrower. “If you feel the property is undervalued, you can raise an objection. However, in case the auction is done through the court, an independent valuer is appointed for carrying out the valuation,” said Poorvi Chothani, proprietor of law firm LawQuest. “You can even sell your own house in order to repay the loan,”

PricewaterhouseCoopers associate director (financial services) Robin Roy said. “The borrower can introduce a prospective buyer to the bank or inform the bank about his intention to sell the property for clearing the dues. However, the bank will not part with the title deeds till all dues are fully settled,” added Mr Kulkarni.

If the sale proceeds exceed the outstanding loan, you are entitled to receive the surplus money unless the loan agreement states otherwise or prescribes a timeframe. “In case the auction is done through court, the proceeds are deposited with the court and the surplus proceeds are returned to the borrower within a reasonable period. When it comes to private treaty, the parties can mutually decide on the time period,” LawQuest associate Rekha Chakri said.