Heres how the bank /
Housing Finance companies (HFCs) will react to the situation and how you can
negotiate with it to resolve it.
by Mr. AMIT
SHANBAUG
Buying a home is the
most expensive purchase you are likely to make, so you may need help in funding
it in the form of a loan.
What if you take a
housing loan. But after some time, find yourself unable to pay the EMIs
(Equated Monthly Instatelments) . There could be many reasons for this, from
losing your job to depleting your savings for a medical exigency.
Will the bank / HFC seize
your property if you miss 2 to 3 mortgage payments No, not immediately, but if
you continue to default for 6 to 8
months, the bank / HFC will take over your property.
Lenders are Wiling to
Negotiate..!
Attaching a property
is the last thing a lender wants to do.Though banks / HFCs have the power to
enforce the Securitisation and Reconstruction of Financial Assets and
Enforcement of Security Interest Act, 2002, (SARFAESI) to recover
non-performing assets (NPAs) without the
intervention of a court of law, this is the last step they prefer to take.
A bank / HFC usually
lets one mortgage payment default slip by, but for the next one, it will mail
or letter or phone you a reminder to inform you that your payments are late.
Ms. V. N. Kulkarni,
Chief counsellor, Abhay Credit
Counselling Centre,
which is sponsored by the Bank of India, said, '' After 3 defaults, the bank /
HFC will send a demand notice, asking you to pay your dues as soon as possible.
If the borrower does not respond to any of the mails/ phone calls / letters the
bank / HFC sends a legal notice through its legal department"
A bank / HFC waits
for about three months before declaring
an asset a non-performing one. After the end of this period, the bank can
officially term the housing loan an NPA and start the process of recovering the
property through the SARFAESI Act, says Ms. V.N, Kulkarni.
Even after invoking
the Act, the bank / HFC gives the borrower a
2 month notice period to repay the dues. Finally, 5 months after the
first default, the bank / HFC sends a notice, stating that it has valued the
property for a certain sum & that it will auction the home on a particular
date. This is usually set for a month from the date that the bank / HFC mails
you the auction notice, adds Ms. V.N. Kulkarni.
Mr. Ankaaj Maalde,
Head (Financial Planning), Apnapaisa.com said, " Banks / HFCs 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 6 months before taking legal action. The
last stage is usually when a borrower gets a notice from the Debt Recovery
Tribunal (for loan amounts of more than Rs. 10 lakh). It is compulsory for you
to attend the hearing that is set by the tribunal, where you can reach an
agreement with the bank / HFC.
If you are serious
about paying your dues & have a good
repayment track record, the bank / HFC will be willing to offer a leeway. The
first step that the bank takes is to understand the reason for the default
since a housing loan is a secured one, with the bank having more control over
the asset. If a bank / HFC is satisfied that the problem is genuine & that
the borrower will start paying the EMI soon, it will be willing to wait for
some more time. However, banks / HFCs take such decisions on a case-to-case
basis, says Mr. Maalde.
Mr. Rajiv Raj,
Director, CreditVidya said, '' Most lenders (Banks / HFCs) take a practical view of
the situation and understand how critical the home is for the individual. So,
they will closely interact with the home loan borrower to understand the reason
for the financial hardship. In fact,a bank will allow you to reclaim your
property even after it has seized it, though this has to be done before the
auction takes place.
Says Ms. Kulkarni:
Even if the auction date has been announced, the borrower can come in at any
stage and pay the dues to save his house property. However, if the bank / HFC
has incurred any charges for announcing the auction, the borrower will have to
pay these.
What are options?
^^ If you have lost your job, but are confident
of getting a new one within 6 months, you can ask the bank to offer you a
moratorium for this period.
^^ If your finances are strained due to some
other reason, such as the EMI going up because of a hike in interest rates
or / increase in personal expenses, ask
the bank to restructure your loan.
^^ To either reduce the EMI or / keep it at the
same level despite a higher interest rate, you could increase the loan tenure.
^^ If you have taken an insurance product, which
also provides a cover for loss of job, the insurance company will take care of
the EMIs for 3 months from the date that you lost your job. For instance, ICICI
Lombards Secure Mind Health plan provides a cover for 9 major medical illnesses
and procedures, death and permanent total disability due to accident and loss
of job. Under the plan, the insurer will pay 3 EMIs on any loan that you have taken
if you lose your job. The hitch is that the job loss should be due to
retrenchment, layoff or / health reasons, and not because you were fired. Also,
though you can take a cover equivalent to your outstanding loan amount, the
policy tenure is only 5 years.
^^ The main reason you need to start paying the
EMI again, other than avoiding possession of your house by the bank, is to
ensure that your credit score is not adversely affected. Nearly 30 % of your
credit score is based on repayment history & a significant part of this usually depends on
how regularly you repay your housing loan, if you have taken one.
^^ Even one or / two missed payments can
negatively impact your credit score, and a continuous default will dent it
severely, making it difficult to get loans or / credit cards in the future.
Since this is a dire circumstance, you could dip into your savings & retirement kitty and redeem your investments
to pay the EMIs.
^^ If it seems that the situation may not improve
even after 6 months,a better idea may be to sell the house property. You can
talk to the bank / HFC about this and use the sale proceeds to prepay the loan.
^^ Ensure that while the sale negotiations are
on, you continue paying the EMIs.This will prove to the bank / HFC that you
arent taking it for a ride & will ensure that your credit score does not
dip.
Steps to take if you
miss the EMIs..!
^^ Call your lender
& find out the options available to
you.
^^ If the default is due
to a hike in interest rates, ask the bank / HFC to reschedule the loan increase
the tenure to keep the EMI at the same level or
/ reduce it.
^^ You can ask the bank
to restructure your home loan payment by taking into consideration the future
income or / by offering your savings as
collateral.
^^ Make a file that
includes all your monthly mortgage payments.This will convince the bank that
you have been a good customer who has been forced to default due to
circumstances beyond your control.
Sourec: ET Wealth
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